United Arab Emirates: Technical Assistance Report - Liquidity Management and Forecasting
IMF Staff Country Reports, July 22, 2022
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Bibliographic details
- Published: July 22, 2022
- Series: IMF Staff Country Reports
- DOI: https://doi.org/10.5089/9798400215759.002
Executive summary and context
- Publication date: July 22, 2022
- Series: Country Report No. 2022/236
- Pages: 116
- Volume: 2022
- Issue: 236
- DOI: https://doi.org/10.5089/9798400215759.002
- Stock No: 1UAEEA2022003
- ISBN: 9798400215759
- ISSN: 1934-7685
- Subject areas: Asset and liability management; Financial services; International organization; Monetary policy
- Keywords highlighted: C. FX swap market, CBUAE FX, Central bank policy rate, contingent liquidity insurance facility, Global, Interbank rates, Liquidity, Liquidity forecasting, liquidity forecasting framework, Liquidity management, liquidity surplus, repo market, United Arab Emirates banking federation
Major findings
- The new Dirham Monetary Framework is largely consistent with an operational framework under a fixed exchange rate regime and capital mobility.
- The foreign exchange swap facility should be discontinued once the eligible collateral for the Overnight Lending Facility is broadened to include US dollars.
- Some improvements can be introduced to the structural open market operations (OMO).
- The Central Bank of the UAE (CBUAE) fine-tuning OMOs should be implemented to manage unexpected liquidity fluctuations during the Reserve Maintenance Period.
- Reserve requirements in the UAE are mainly a tool for monetary policy and liquidity management purposes but their nonremuneration is acting as an indirect tax on financial intermediation.
Liquidity forecasting and operations recommendations
- Implement the designed state-of-the-art, full-fledged forecasting framework for each of the three main autonomous factors.
- Adopt a reconciliation strategy to forecast the sum of the autonomous factors with an estimation of the confidence interval.
- Broaden eligible collateral for the Overnight Lending Facility to include US dollars as a precondition to discontinue the foreign exchange swap facility.
- Introduce improvements to structural OMOs and operationalize CBUAE fine-tuning OMOs to manage unexpected liquidity fluctuations during the Reserve Maintenance Period.
- Recognize and address the implicit tax effect of nonremunerated reserve requirements on financial intermediation.
Framework features and expected benefits
- The new liquidity forecasting framework provides several important features for liquidity management (framework features are described in the report).
- A full forecasting framework for autonomous factors plus a reconciliation and confidence-interval estimation aims to improve accuracy and operational confidence in liquidity management decisions.
International Monetary Fund. United Arab Emirates: Technical Assistance Report - Liquidity Management and Forecasting. IMF Staff Country Reports 2022, 236 (2022).
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- 1uaeea2022003