The Central Bank of the United Arab Emirates (CBUAE) has announced that it will maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 4.40%, aligning its decision with the latest policy stance of the US Federal Reserve.
The move comes in response to the Fed’s decision on Wednesday to keep the Interest Rate on Reserve Balances (IORB) unchanged. Given the UAE dirham’s peg to the US dollar, CBUAE’s monetary policy decisions are closely tied to the actions of the Federal Reserve.
Interest rate corridor remains steady
In addition to holding the Base Rate, the CBUAE also confirmed that the interest rate for borrowing short-term liquidity through its standing credit facilities will continue to be set at 50 basis points above the Base Rate.
The Base Rate, anchored to the Fed’s IORB, serves as the central bank’s primary tool for signaling its monetary policy stance. It acts as an effective floor for overnight money market interest rates within the UAE’s banking system, influencing liquidity conditions across the domestic financial sector.
Aligning policy to ensure financial stability
The Central Bank’s decision aims to maintain price and monetary stability while supporting the overall resilience of the UAE economy. By mirroring the Federal Reserve’s move, the CBUAE reinforces the dirham’s fixed exchange rate and provides clarity to financial markets regarding the policy trajectory.
This rate hold follows a series of earlier monetary tightening measures in response to global inflationary pressures. With inflation in the US stabilising, the Fed’s current pause offers regional central banks room to assess domestic economic indicators before initiating further policy adjustments.
The CBUAE has not provided forward guidance on future rate decisions, indicating that upcoming moves will remain dependent on global interest rate dynamics and evolving macroeconomic conditions.
