UAE interest rates unchanged after US Fed announcement

Following the US Federal Reserve’s decision to keep interest rates unchanged, the Central Bank of the UAE (CBUAE) has followed suit.

In an announcement overnight, the Central Bank of the UAE said it would keep the base rate, applicable to the Overnight Deposit Facility (ODF), unchanged at 5.40 per cent.

“The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the base rate for all standing credit facilities,” said the CBUAE in a statement.

The CBUAE’s base rate is anchored to the US Federal Reserve’s IORB (Interest on Reserve Balances), just as the UAE’s currency is pegged to the US dollar at a fixed rate of Dhs3.67.

Overnight, the US Federal Reserve announced that it would leave its key overnight policy rate unchanged at 5.25-5.50 per cent.

Meanwhile, analysts are projecting that there could be up to 75 basis points of rate cuts in 2024 by the US Federal Reserve. 

Charu Chanana, a market strategist at Saxo Bank, told Gulf Business: “The Fed pivot party got a big boost with the FOMC adding another rate cut to next year’s dot plot and Chair Powell’s comment that they may be near peak rates. However, the US dollar slump may get a reality check today on US exceptionalism, particularly if the ECB proves to be relatively even more dovish than the Fed.”

Vijay Valecha, Chief Investment Officer Century Financial, added: “The Federal Reserve held interest rates steady at a 22-year high between 5.25% and 5.50% during its final FOMC meeting for the year. In doing so, officials prolonged their rate-hike pause to six months as the next policy meeting is scheduled for the end of January 2024. Although Powell refrained from declaring a victory against inflation just yet, he acknowledged that inflation, including core CPI, was decelerating across categories steadily. Markets were seeking clarity about rate cuts next year and the FOMC committee did not disappoint, as it signaled a potential Fed pivot.”