The Central Bank of the UAE (CBUAE) has increased its base rate applicable to the Overnight Deposit Facility by 5 basis points to 15bps.
The base rate is the interest rate a central bank charges its domestic commercial lenders to borrow money. The decision to raise the rate, which takes effect on 17 June this year, came after the US Federal Reserve Board decided to increase the Interest on Excess Reserves (IOER) by 5 bps.
The CBUAE also decided to “maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 bps above the base rate”.
“The base rate, which is anchored to the US Federal Reserve’s IOER, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates,” the CBUAE said.
Most GCC central banks follow the Fed moves on key interest rates due to the peg of their currencies to the US dollar, with the exception of Kuwait, whose dinar is connected to a basket of currencies. The region’s central banks last decreased rates in March 2020 following the largest rate cut by the Fed since the 2008 global financial crisis.
Recently, the US central bank officials held interest rates near zero but signaled they expect two increases by the end of 2023, pulling forward the anticipated date of rate increases as the world’s biggest economy recovers. Optimism about the labor market and fears about rising prices has accelerated the rate at which they plan to tighten policy, as per the reports.