The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 4.40 percent. The decision was taken following the U.S. Federal Reserve’s announcement to keep the interest rate on reserve balances unchanged.
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.
Decision’s impact on UAE economy limited
The CBUAE’s base rate, which is anchored to the U.S. Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.
The U.S. Federal Reserve’s interest rate decisions directly influence the UAE economy due to the UAE dirham’s peg to the U.S. dollar. The Central Bank of the UAE (CBUAE) aligns its monetary policy with the Fed to maintain this peg,” said Vijay Valecha, chief investment officer, Century Financial.
This synchronization ensures currency stability but affects borrowing and investment, added Valecha.
“Personal loan rates are unlikely to see significant changes in the near term, offering predictability for borrowers. However, UAE savers can continue to capitalize on high fixed deposit (FD) rates offered by banks, supported by robust liquidity in the financial sector. The UAE’s economy is well-positioned to withstand high interest rates, thanks to its strong non-oil sector growth,” he added.
Read: UAE banking sector assets surpass $1.29 trillion in April 2025
Fed holds rates at 4.25-4.5 percent
In support of its goals, the Fed Committee decided to maintain the target range for the federal funds rate at 4.25-4.5 percent. The last rate cut was in December, and the Fed hiked rates from March 2022 to July 2023 to fight inflation.
It noted that although swings in net exports continue to affect economic data, recent indicators suggest that the growth of U.S. economic activity moderated in the first half of the year. However, the unemployment rate remains low, and labor market conditions remain solid. Meanwhile, inflation remains somewhat elevated.
“The decision to hold was expected, but it doesn’t shift the path. The Fed has likely just bought itself eight more weeks before a pivot. We now expect that by September, the underlying softness in the economy will make a cut not just justified, but necessary,” said Nigel Green, CEO of deVere Group.
The Fed seeks to achieve maximum employment and inflation at the rate of 2 percent over the longer run. Uncertainty about the economic outlook remains elevated.
The Fed’s next meeting is set for September 16-17. Traders are pricing in a 46 percent probability of a rate cut by September, down from about 65 percent a day ago, according to the CME Group’s FedWatch Tool. They are also no longer pricing in two full 25-basis-point cuts by year-end as they were in recent days.
