Thursday 13 June 2024

Thursday 13 June 2024

The CBUAE issues its 2023 Annual Report

Press Release

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Dirham Monetary Framework

Framework Pillars

  • 1

    Pillar One:

    Standing Facilities and Base Rate

    On-demand facilities, which address both overnight and intraday money market conditions, are divided into three categories: overnight deposit, intraday liquidity, and overnight lending. The rate applicable to the overnight deposit facility, the Base Rate, is the prevailing monetary policy rate in the UAE.

  • 2

    Pillar Two:

    Open Market Operations

    Open Market Operations (OMOs) play an important role in the implementation of monetary policy by:

    • -  Managing liquidity in the domestic market.
    • -  Steering short-term market interest rates to smooth the effects on interest rates caused by unexpected liquidity fluctuations. This helps minimise the gap between the Central Bank of the UAE's Base Rate and overnight interbank rates, such as DONIA and overnight EIBOR.

  • 3

    Pillar Three :

    Liquidity Insurance

    Liquidity insurance refers to liquidity assistance that could be provided during actual or prospective stress. The circumstances could be market-wide or idiosyncratic, where Deposit-Taking Licensed Financial Institutions need additional liquidity at extended terms, to be executed on a contingent basis and at the CBUAE’s discretion.

  • 4

    Pillar Four:

    Statutory Reserve Requirements

    Statutory reserves are used primarily for liquidity management purposes, such as drawing against reserves, and to provide protection against both liquidity and solvency risks.

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Last updated on: Friday 05 August 2022

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