The UAE will sell its first conventional and Islamic bonds this year, Bloomberg quoted Central Bank Governor Sultan bin Nasser Al Suwaidi as saying.
The creation of a bond market will “take liquidity straight from the public” as it will compete with bank deposits, explained Al Suwaidi.
“Selling government bonds will also help develop the nation’s corporate debt market,” the central bank official said.
The government aims “to develop tools for the stability of the financial markets and an additional tool for monetary policy”, Al Suwaidi also mentioned in an interview on Friday.
Bloomberg reported that the UAE, the second-largest Arab economy, is seeking additional ways of controlling inflation as the weakening dollar pushes up import prices. A survey conducted by the news agency found that UAE’s inflation accelerated to a record 9.8 per cent last year, from 9.3 per cent in 2006.
The Central Bank replaced its system of selling certificates of deposit with an auction process on November 28, 2007, extending the maximum maturity to five years from 18 months.
Interest rates have fallen since then as increased liquidity in the banking system translates into higher demand for the certificates of deposit, said Al Suwaidi.
UAE bonds sale to soak up liquidity