The Central Bank of the UAE (CBUAE) has announced its decision to keep the base rate for the Overnight Deposit Facility (ODF) unchanged at 5.40%. This move follows the recent announcement by the US Federal Reserve to maintain the Interest Rate on Reserve Balances (IORB).
The CBUAE’s decision reflects its alignment with the monetary policy stance of the US Federal Reserve, considering the peg of the UAE dirham to the US dollar. Consequently, by keeping the base rate steady, the CBUAE aims to ensure stability in the UAE’s financial system. Moreover, this move supports its broader economic goals, reinforcing both financial stability and economic growth.
In a statement released by WAM, the Central Bank of the UAE (CBUAE) also mentioned that it will maintain the interest rate applicable to borrowing short-term liquidity from the Central Bank of the UAE (CBUAE) at 50 basis points above the base rate for all standing credit facilities. This measure ensures that the cost of short-term borrowing remains predictable for financial institutions in the UAE.
The US Federal Reserve’s IORB directly links to the UAE’s monetary conditions, keeping them closely aligned with those of the US.
The CBUAE aims to balance the need for economic growth with the necessity of controlling inflation by maintaining the base rate at 5.40%.
By keeping borrowing costs stable, the CBUAE supports businesses and consumers while controlling inflationary pressures.
The CBUAE’s decision is part of a broader strategy to maintain financial stability and promote sustainable economic growth. It comes at a time when global economic conditions remain uncertain, and central banks worldwide are carefully calibrating their policies to navigate through various economic challenges.
Financial analysts view the CBUAE’s move as prudent, given the interconnectedness of the global economy and the importance of maintaining a stable interest rate environment. The alignment with the US Federal Reserve’s policy also underscores the significance of the UAE’s currency peg to the US dollar, which has been a cornerstone of the country’s monetary policy.
The CBUAE’s announcement is a signal to markets that it remains committed to maintaining stability and confidence in the UAE’s financial system. As the global economy continues to evolve, the CBUAE’s policy decisions will play a crucial role in shaping the economic landscape of the UAE.
