Borrowing costs in the UAE have decreased as the Central Bank closely mirrored the US Federal Reserve’s decision to cut interest rates by 50 basis points.
The Central Bank of the UAE (CBUAE) announced that it had lowered the base rate for the overnight deposit facility (ODF) by 50 basis points, from 5.40% to 4.90%, effective Thursday.
The US Federal Reserve initiated its monetary easing cycle on Wednesday with a larger-than-expected half-percentage-point rate cut. Fed Chair Jerome Powell stated that the move was intended to support low unemployment as inflation pressures ease.
While the size of the cut was anticipated by investors, it exceeded the expectations of economists polled by Reuters, who predicted a 25-basis-point reduction.
The dollar responded by rebounding from a recent low, with the dollar index rising slightly to 101.03. The US dollar gained 0.58% against the yen, reaching 143.12, while the euro fell 0.04% to $1.1113.
Rodrigo Catril, senior FX strategist at National Australia Bank, noted that although there was some volatility following the announcement, the market reaction was in line with expectations. The market had largely priced in around 100 basis points of cuts this year and another 100 next year, with the terminal rate expected to stay below 3%.
Federal Reserve officials projected further rate cuts, predicting a drop of another half percentage point by the end of this year, a full percentage point next year, and an additional reduction in 2026. However, they stressed that such long-term forecasts remain uncertain.