The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 15 basis points, effective from 29th July 2021.
The CBUAE said in a statement that this decision was taken following the US Federal Reserve Board’s announcement to set the Interest on Reserve Balances (IORB) at 15 basis points.
The Central Bank has also decided to keep the rate at 50 basis points above the Base Rate for borrowing short-term liquidity from the CBUAE through all standing credit facilities.
According to the CBUAE, “The Base Rate, which signals the general stance of the CBUAE’s monetary policy, shall be anchored to the US Federal Reserve Board’s IORB rate, effective from 29th July 2021. This follows the Federal Reserve’s announcement that, as of 29th July 2021, rates applicable on Interest on Excess Reserves (IOER) and Interest of Requited Reserves (IORR) will be replaced by the single IORB rate.”
The base rate is the interest rate a central bank charges its domestic commercial lenders to borrow money. Previously, the rate applicable to IOER had been the anchor for the CBUAE’s Base Rate.
Most GCC central banks follow the Fed moves on key interest rates because their currencies are pegged to the US dollar, with the exception of Kuwait, whose dinar is connected to a basket of currencies. The region’s central banks last reduced rates in March 2020 following the biggest rate cut by the Fed since the 2008 global financial crisis.
Last Month, CBUAE has increased its base rate applicable to the Overnight Deposit Facility by 5 basis points to 15bps.