UAE central bank outlines details of liquidity fund

25 September 2008
The Central Bank of the UAE has revealed the details of a AED50bn ($13.6bn) liquidity injection designed to help ease the cost of borrowing in the interbank lending market.

The structure of the fund shows that the central bank is trying to provided much-needed additional liquidity in the banking system, without encouraging excessive credit growth and higher inflation.

The fund will allow banks to borrow up to their reserve requirements, which are 14 per cent on current account deposits and 1 per cent on savings accounts, for a fee of 5 per cent.

The central bank has also relaxed requirements for banks to settle overdrafts held with it at the end, for any additional liquidity shortfalls, has also been made available.

The fund has been established to try to reduce interbank lending rates in the UAE, which had reached 3.76 per cent for one month funding on 25 September.

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