CBUAE holds interest rate at 5.40%, mirroring US Fed’s decision

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The Central Bank of the UAE (CBUAE) has decided to maintain its Base Rate for the Overnight Deposit Facility (ODF) at 5.40 per cent, in response to the US Federal Reserve’s decision to hold interest rates steady.

This move reflects the CBUAE’s alignment with the US Federal Reserve’s stance and signals stability in monetary policy for the near future.

On Wednesday, the  US Fed announced it would keep interest rates unchanged, while suggesting that any cuts may be delayed until late 2024.

US Federal Reserve chair Jerome Powell emphasised that the US economy remains robust, with growth and unemployment rates stabilised at favourable levels. Powell conveyed confidence that inflation could continue to decrease without severely impacting the economy, stating, “We think we’ve been making progress toward the price stability goal.”

The US Fed’s decision to pause rate adjustments comes as inflation levels, although slowing down, has not required drastic fiscal changes.

Powell indicated that the US Fed’s current policy stance is appropriate, as long as the economic dynamics continue to support stable inflation and employment levels. “We’ve got a good strong labour market,” Powell noted. “We think yes, it’s about right.”

CBUAE holds interest rate steady

In light of the US Fed’s position, the CBUAE’s announcement to maintain the ODF Base Rate at 5.40 per cent was reported by the UAE’s state news agency, WAM. This decision keeps the UAE’s borrowing short-term liquidity rate at 50 basis points above the Base Rate for all standing credit facilities.

The Base Rate in the UAE, linked to the US Fed’s Interest on Reserve Balances (IORB), serves as an indicator of the UAE’s monetary policy stance and establishes an effective floor for overnight money market interest rates within the country.

The CBUAE’s alignment with the US Federal Reserve underscores a commitment to monetary stability and reflects a cautious approach to future economic conditions, added WAM.

As the Federal Reserve continues to monitor inflation and employment data closely, Powell highlighted that future rate cuts will depend on a comprehensive analysis of economic data, including labour market conditions and overall growth trends.

Read: CBUAE raises interest rates after US Fed resumes rate hike