As part of the new Dirham Monetary Framework implementation plan, the Central Bank of the UAE will publish a new index for actual overnight funding transactions denominated in dirhams.
The Dirham Overnight Index Average will be implemented on December 7th, with the goal of providing market participants with relevant data on the overall state of the actual interbank market, as well as improving transparency in domestic money market activities.
“The publication of this new reference rate will not only add transparency to the dirham money markets, but will also assist the central bank in ensuring overnight money market rates are aligned with the prevailing base rate,” said Central Bank Governor Khaled Ba Khaled Balama said in a statement on Sunday.
Overnight financing is a fee paid to hold a trading position overnight on leveraged trades. It is essentially an interest payment to cover the cost of the overnight leverage. Charges are levied on positions that do not have an expiration date.
The central bank anticipates that Donia will serve as a reference point for lenders in determining factors relevant to their daily interbank rate fixing (Emirates Interbank Offered Rate). The regulator has no plans to phase out Eibor once Donia is published because the two will coexist in domestic markets.
“At this time, Donia shall not be used to price financial market products offered or structured in the UAE,” according to a statement.
Donia is the dirham’s effective overnight reference rate. It is intended to improve monetary policy transmission in the UAE and is an accurate reflection of conditions in the actual local interbank market.
The index is calculated as a volume-weighted money market rate for all overnight secured and unsecured funding transactions of Dh10 million or greater contracted by all banks operating in the UAE and captured through the UAE Funds Transfer System, using best global practices and in line with similar interbank indexes published in other leading jurisdictions.
It will be available on the central bank’s website and through Bloomberg and Refinitiv Eikon by 9.30 a.m. local time on official UAE working days.