CBUAE raises interest rates after US Fed resumes rate hike

The Central Bank of UAE (CBUAE) announced an increase in its interest rates in response to a hike in the US Federal Bank’s benchmark rate on July 26, reported state news agency WAM.

The CBUAE has decided to raise the base rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points – from 5.15 to 5.40 percent, effective from July 27.

قرر #مصرف_الإمارات_المركزي رفع سعر الأساس على تسهيلات الإيداع لليلة واحدة بـ 25 نقطة أساس – من 5.15% إلى 5.40%، وذلك اعتباراً من يوم الخميس 27 يوليو 2023.

The #CentralBankUAE has decided to raise the Base Rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points… pic.twitter.com/nllElYubh0

— Central Bank of the UAE (@centralbankuae) July 26, 2023

This decision was taken following the US Federal Reserve Board’s announcement, to increase the interest on reserve balances (IORB) by 25 basis points.

The CBUAE has decided to maintain the rate applicable to borrowing short-term liquidity through all standing credit facilities at 50 basis points above the base rate.

US Fed raises interest rates for 11th time

The base rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates in the UAE.

The US Federal Reserve continued its increase in its key interest rate after it had paused it for a month. The rates are now at a 22-year high.

Jerome Powell, Federal Reserve Chairman said the interest rate increase was an attempt to bring inflation down to its 2 per cent target range after prices hit a four-decade high in June 2022.

Read Chair Powell’s full opening statement from the #FOMC press conference (PDF): https://t.co/k9Vg3sXWgp pic.twitter.com/KM4NMQh0uO

— Federal Reserve (@federalreserve) July 26, 2023

The Fed has increased the policy rate for the eleventh time since March 2022. It is now the highest since 2001.

The Fed has now raised rates by a total of 525 basis points since March of last year. This latest increase brings the rate between 5.25 per cent and 5.5 per cent.