The Central Bank of the UAE (CBUAE) has announced a reduction in its Base Rate on the Overnight Deposit Facility (ODF) by 25 basis points, lowering it from 4.65% to 4.40%, effective Thursday, 19th December. This decision follows the US Federal Reserve’s move to cut the Interest Rate on Reserve Balances (IORB) by the same margin earlier this week.
Key Highlights of the Announcement:
- Interest Rate Adjustments:
- The Base Rate serves as the foundation for monetary policy and provides a floor for overnight money market interest rates in the UAE.
- Short-term liquidity borrowing rates from the CBUAE will remain at 50 basis points above the Base Rate, applicable to all standing credit facilities.
- Global Monetary Influence:
The Base Rate is anchored to the US Federal Reserve’s IORB, reflecting the UAE’s pegged currency system to the US dollar and the alignment of its monetary policies with global trends.
CBUAE’s Stance on Monetary Policy:
By adjusting the Base Rate, the CBUAE aims to maintain stability in the UAE’s monetary framework while ensuring competitive rates for overnight market participants. The reduction is anticipated to encourage borrowing and support the UAE economy amid evolving global economic conditions.
Context of the Decision:
The US Federal Reserve’s recent interest rate cut signals a broader easing of monetary policy aimed at addressing economic challenges. The UAE’s decision reflects the nation’s commitment to align its policies with international benchmarks while fostering domestic economic resilience.
This announcement is part of the UAE’s proactive approach to adjusting interest rates in tandem with global developments, ensuring stability and adaptability in its financial system.
