The US Federal Reserve cut its key interest rate by 50 basis points on Wednesday after a two-day meeting to 4.75-5.0 percent from 5.25-5.50 percent.
The Fed attributed this move to recent indicators that suggested that economic activity continued to expand at a solid pace.
“Job gains have slowed, and the unemployment rate has moved up but remains low. Inflation has made further progress toward the Committee’s 2 percent objective but remains somewhat elevated,” the Fed said in a statement following the Federal Open Market Committee meeting.
A long wait
The US Federal Reserve had last increased interest rates in July 2023. This was a 0.25 percentage point increase, bringing the rates to the 5.25-5.5 percent range. That time, this was the highest interest rate range in 22 years.
The Fed also said that it would continue to monitor the implications of incoming information for the economic outlook, and adjust the stance of monetary policy as appropriately.
The recent decision aims to support the job market by preventing further weakening of employment conditions.
“The committee’s assessments will take into account a wide range of information, including readings on labor market conditions, inflation pressures and inflation expectations, and financial and international developments,” the statement added.
UAE matches rate revision
Following the Fed’s announcement, many central banks in the GCC, including the UAE Central Bank, announced a matching rate revision.
Other central banks, such as the Bank of England and the European Central Bank, have also initiated rate cuts in response to the Fed’s decision, indicating a coordinated effort to stabilize global economic conditions.
The UAE Central Bank cut the “base rate applicable to the overnight deposit facility (ODF) by 50 basis points – from 5.40 percent to 4.90 percent, effective from Thursday, September 19, 2024,” the regulator said in a statement.
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 US 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 UAE dirham is pegged to the US dollar.
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