UAE slashes interest rates by 0.5% after US Fed decision

Borrowing costs in the UAE are lower after the country’s central bank closely followed the US Federal Reserve’s decision to cut interest rates by 50 basis points overnight.

In a statement, the Central Bank of the UAE (CBUAE) said it has reduced the base rate applicable to the overnight deposit facility (ODF) by 50 basis points, from 5.40 to 4.90 percent, effective from Thursday.

The U.S. central bank on Wednesday kicked off its monetary easing cycle with a larger-than-usual half-percentage-point reduction that Chair Jerome Powell said was meant to show policymakers’ commitment to sustaining a low unemployment rate now that inflation has eased.

While the size of the move had been anticipated by investors in part due to a slew of media reports pointing in that direction ahead of the decision, it defied the expectations of economists polled by Reuters, who were leaning toward a 25-basis-point cut.

Still, markets reacted in a typical “buy the rumour, sell the fact” fashion that kept the dollar on the front foot in early Asian trade. It rebounded from a more than one-year low against a basket of currencies in the previous session and was last marginally higher at 101.03 =USD.

Against the yen, the greenback gained 0.58 per cent to 143.12. The euro fell 0.04 per cent to $1.1113, away from a three-week high hit in the previous session.

“Obviously, (there was) a lot of volatility on the announcement, but in terms of the pricing action and the information that came out ... it’s not really that controversial in a sense,” said Rodrigo Catril, senior FX strategist at National Australia Bank (NAB).

“It’s sort of been pretty close to what the market has been pricing, particularly in terms of expectations of – arguably a little bit more than a 100 – but 100 bps of rate cuts this time around and another 100 next year, and also a terminal rate that is below 3 per cent as well. So the big picture … is not materially different.”

Fed policymakers on Wednesday projected the benchmark interest rate would fall by another half of a percentage point by the end of this year, a full percentage point next year and half of a percentage point in 2026, though they said the outlook that far into the future is necessarily uncertain.