The Central Bank of the UAE (CBUAE) has cut the base rate for the Overnight Deposit Facility (ODF) by 25 basis points, lowering it from 3.90% to 3.65%. This move marks the third and final rate adjustment by the central bank in 2025. Furthermore, the decision aligns closely with the US Federal Reserve’s reduction of the Interest Rate on Reserve Balances (IORB) by the same margin.
Impact on Borrowing and Monetary Policy
The CBUAE also confirmed that the interest rate for short-term borrowing from the central bank will remain 50 basis points above the base rate for all standing credit facilities. By doing so, the central bank maintains consistency in its liquidity management while supporting the broader stability of financial markets in the UAE.
The base rate, anchored to the US Federal Reserve’s IORB, serves as a benchmark for the UAE’s overnight money market interest rates. Consequently, this adjustment signals the general stance of monetary policy while ensuring that market rates remain aligned with global benchmarks.
Economic Implications
By following the Fed’s lead, the UAE aims to balance domestic economic growth with international financial conditions. This final rate cut for 2025 reflects a cautious approach to maintaining liquidity, supporting borrowing, and sustaining investor confidence, while reinforcing the UAE’s proactive monetary policy framework.
