CBUAE maintains base rate at 4.40%; reflects US Fed move

The Central Bank of the UAE (CBUAE) has announced it will maintain the base rate applicable to the overnight deposit facility (ODF) at 4.40 per cent, following the US Federal Reserve’s (US Fed) decision to keep its interest rate on reserve balances (IORB) unchanged.

The CBUAE also confirmed it would maintain the interest rate for borrowing short-term liquidity from the central bank, set at 50 basis points above the base rate for all standing credit facilities.

The base rate, which is closely tied to the US Fed’s IORB, serves as a key indicator of the UAE’s monetary policy stance and acts as an effective floor for overnight money market interest rates within the country.

The decision follows the US Fed’s latest move to hold rates steady, signalling a cautious approach toward further tightening amid evolving economic conditions.

US Fed remains attentive to economic risks

On January 29, the US Fed announced its decision to maintain the target range for the federal funds rate at 4.25  to 4.50 per cent, citing solid economic growth and stable labour market conditions, while acknowledging that inflation remains somewhat elevated.

In its latest assessment, the Federal Open Market Committee (FOMC) noted that economic activity has continued to expand at a solid pace, with the unemployment rate stabilising at a low level in recent months. The committee also emphasised that labour market conditions remain strong, although inflation pressures persist.

The FOMC reiterated its commitment to achieving its dual mandate: maximum employment and a 2 per cent inflation target over the longer run. However, the Committee observed that risks to achieving these goals remain roughly balanced, and the economic outlook remains uncertain.

In making its decision, the FOMC stated that it would carefully assess incoming data, evolving economic conditions, and the balance of risks when considering future adjustments to the federal funds rate. The committee also highlighted its ongoing efforts to reduce its holdings of treasury securities and agency mortgage-backed securities as part of its strategy to manage inflation.

“The committee is strongly committed to supporting maximum employment and returning inflation to its 2 per cent objective,” the statement read. “We will continue to monitor the implications of incoming information and adjust our policy stance as appropriate if risks emerge that could impede the attainment of our goals.”

The FOMC’s next steps will depend on a range of factors, including labor market conditions, inflation expectations, and broader financial and international developments.

The decision was unanimously supported by the voting members of the committee, including Jerome H Powell (chair) and John C Williams (vice chair).