Image: WAM/ For illustrative purposes
The Central Bank of the UAE (CBUAE) thas announced its decision to maintain the base rate applicable to its overnight deposit facility (ODF) at 4.40 per cent. This move follows the US Federal Reserve’s announcement to keep the interest rate on reserve balances (IORB) unchanged.
The CBUAE will also maintain the interest rate for borrowing short-term liquidity from the CBUAE at 50 basis points above the base rate, applicable to all standing credit facilities.
This decision by the CBUAE directly stems from the UAE dirham‘s peg to the US dollar, which necessitates mirroring the monetary policy actions of the US Federal Reserve to ensure currency stability and consistent financial conditions.
US Fed maintains base rate
The Federal Reserve decided yesterday to maintain its target range for the federal funds rate at 4-1/4 to 4-1/2 per cent.
This stance by the US central bank is taken as it assesses an economic outlook indicating continued solid expansion despite swings in net exports, a low unemployment rate, and generally solid labor market conditions, even with inflation remaining somewhat elevated.
The Federal Reserve, committed to supporting maximum employment and returning inflation to its 2 percent objective over the longer run, continues to monitor incoming data, the evolving outlook, and the balance of risks.
The CBUAE’s base rate, anchored to the US Federal Reserve’s IORB, serves as a key indicator of the UAE’s general monetary policy stance.
It also establishes an effective floor for overnight money market interest rates across the UAE, ensuring the transmission of monetary policy within the national financial system.
