The Central Bank of the UAE (CBUAE) announced it will keep the Base Rate for the Overnight Deposit Facility (ODF) steady at 5.40%.
This decision aligns with the US Federal Reserve’s announcement to maintain the Interest Rate on Reserve Balances (IORB) unchanged.
Additionally, the CBUAE will continue to apply an interest rate for borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities.
The Base Rate, tied to the US Federal Reserve’s IORB, reflects the overall monetary policy stance and sets an effective floor for overnight money market interest rates in the UAE.
The Base Rate is a crucial tool for the CBUAE as it guides the country’s monetary policy and influences the economic environment.
By anchoring the Base Rate to the US Federal Reserve’s IORB, the Gulf country ensures stability and predictability in its financial system, which is particularly important given the dirham’s peg to the US dollar.
This connection means that changes in US interest rates directly impact the UAE’s monetary policy decisions.
The decision to maintain the current rate indicates a cautious approach in response to global economic conditions, ensuring alignment with the Federal Reserve’s policies to manage liquidity and inflation effectively.
The UAE is expected to witness a growth in its real GDP of 3.9% in 2024, up from the previous forecast of 3.7% made in January 2024. In 2025, the real GDP is forecast to expand further to 4.1%.
According to the World Bank‘s latest Global Economic Prospects report, growth in the broader Middle East and North Africa (MENA) region is also anticipated to pick up, reaching 2.8% in 2024 and accelerating to 4.2% in 2025.
