The Central Bank of the UAE (CBUAE) announced that it has decided to keep interest rates steady, maintaining the Base Rate applicable to the Overnight Deposit Facility (ODF) at 4.40 percent. This decision was taken following the U.S. Federal Reserve’s announcement to keep the interest rate on reserve balances (IORB) unchanged.
The CBUAE 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 Fed’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE, said the central bank in its statement.
Risks to economy seen rising
Late Wednesday, the Federal Reserve held interest rates steady but said the risks of higher inflation and unemployment had risen, further clouding the economic outlook as policymakers assessed the impact of President Donald Trump’s tariffs.
The Fed held the benchmark overnight rate steady in the 4.25-4.50 percent range, noting that since the central bank’s last meeting in March, “uncertainty about the economic outlook has increased further.”
In a press conference following the decision, Fed Chair Jerome Powell said it isn’t yet clear if the economy will continue its steady pace of growth, or decline amid uncertainty and a possible spike in inflation.
Read: Job creation in UAE’s non-oil sector rises to highest level in 11 months, says PMI
Economy remains resilient despite recent decline
The Fed’s interest rate statement and Powell’s comments confirmed the U.S. economy’s continued resilience, with reports of notable job gains. Powell said the recently reported decline in gross domestic product in the first quarter was impacted heavily by a record rush of imports as businesses and households tried to front-run expected import taxes, with measures of domestic demand still growing.
“Businesses and households are concerned … and postponing economic decisions of various kinds. If that continues and nothing happens to alleviate those concerns, you would expect that to show up in economic data,” Powell said.
The Fed’s future direction will be dependent on developments in the job market and inflation risks. A weaker job market typically pushes the central bank to make rate cuts, but higher inflation would call for monetary policy to remain tight.
