Following the U.S. Federal Reserve’s decision to hold interest rates steady, the Central Bank of the UAE (CBUAE) decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 4.40 percent.
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.
The 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.
Tariff-driven inflation concerns persist
Following the decision to keep interest rates in the 4.25-4.50 percent range, U.S. central bank policymakers signaled that rate cuts are still likely to happen in 2025. However, Federal Reserve Chair Jerome Powell cautioned against putting too much weight on that view, and said he expects “meaningful” inflation ahead as consumers pay more for goods due to the Trump administration’s planned import tariffs.
“No one holds these … rate paths with a great deal of conviction, and everyone would agree that they’re all going to be data-dependent,” Powell said in a press conference after the end of a two-day U.S. central bank meeting. If not for tariffs, Powell said, rate cuts might actually be in order, given that recent inflation readings have been favorably low.
“Everyone that I know is forecasting a meaningful increase in inflation in coming months from tariffs, because someone has to pay for the tariffs … between the manufacturer, the exporter, the importer, the retailer,” Powell added.
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Growth to slow amid higher unemployment and inflation
In the new economic projections released alongside the Fed’s statement, policymakers saw growth in 2025 slowing to 1.4 percent, unemployment rising to 4.5 percent, and inflation ending the year at 3 percent, well above the current level. Under the new projections, inflation will remain elevated at 2.4 percent in 2026 before falling to 2.1 percent in 2027 amid largely stable unemployment.
While policymakers still expect to cut interest rates by half a percentage point this year, in line with their March and December projections, they slightly slowed the pace to a single quarter-percentage-point cut in each of 2026 and 2027 in a bid to return inflation to its 2 percent target.
The Fed cut interest rates three times last year, with the last move coming in December. However, policymakers have been reluctant to commit to a timeline for further cuts given the volatility of U.S. trade policy.
