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27 July 2023
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CBUAE raises base rate after Fed hike

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy..reports Asian Lite News

The Central Bank of the UAE (CBUAE) has decided to raise the Base Rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points – from 5.15 to 5.40 percent, effective from Thursday, 27th July, 2023.

This decision was taken following the US Federal Reserve Board’s announcement earlier to increase the Interest on Reserve Balances (IORB) by 25 basis points.

The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate.

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates in the UAE.

The US Federal Reserve has raised its benchmark interest rates by 25 basis points to the range of 5.25 to 5.5 per cent, the highest level in over two decades, as it continues to ramp up its fight against inflation.

It is the 11th interest rate increase since the Fed began its aggressive rate hiking campaign in March 2022, taking the federal funds rate to its highest level since early 2001.

“Recent indicators suggest that economic activity has been expanding at a moderate pace. Job gains have been robust in recent months, and the unemployment rate has remained low. Inflation remains elevated,” the Federal Open Market Committee (FOMC), the Fed’s policy-setting body, said in a statement on Wednesday afternoon, after a two-day policy meeting.

The FOMC “seeks to achieve maximum employment and inflation at the rate of 2 per cent over the longer run. In support of these goals, the committee decided to raise the target range for the federal funds rate to 5.25-5.5 per cent,” it said.

The latest economic indicator showed that the US consumer price index slowed down to 3 percent year on year in June, the lowest since March 2021, but still above the central bank’s target range of 2 per cent, suggesting more policy action may be needed.

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