In a move aligned with global monetary policy trends, the Central Bank of the United Arab Emirates (CBUAE) has announced that it will maintain the Base Rate applicable to its Overnight Deposit Facility (ODF) at 4.40 percent. The decision, disclosed shortly after the US Federal Reserve opted to leave its own interest rate on reserve balances (IORB) unchanged on May 7, 2025, signals the UAE’s continued commitment to monetary stability and its close coordination with international financial developments.
As part of the announcement, the CBUAE also confirmed that it will retain the interest rate applicable to borrowing short-term liquidity from the central bank at 50 basis points above the current Base Rate. This applies to all standing credit facilities provided by the central bank and reflects its intention to maintain an orderly and predictable interest rate environment in the domestic financial system.
The CBUAE’s Base Rate is directly anchored to the US Federal Reserve’s IORB, making the Fed’s decisions a critical reference point for monetary policy in the UAE. This pegging ensures that the UAE’s monetary policy remains in sync with global trends, particularly those originating from the world’s largest economy. As a result, the central bank’s decision to hold its rate steady is a strategic move intended to maintain financial stability, support domestic liquidity management, and safeguard the UAE dirham’s peg to the US dollar.
The Base Rate serves a key function in the UAE’s monetary framework by setting the floor for overnight money market interest rates. It plays a vital role in signaling the central bank’s policy stance and helps guide short-term interest rates in the broader banking system. By maintaining this rate, the CBUAE is reinforcing its message of stability amid a global economic environment characterized by cautious optimism and lingering inflation concerns.
This policy stance also reflects the central bank’s continued vigilance in responding to external economic developments. With the US Federal Reserve holding its rate steady due to persistent inflation and a solid labor market, the CBUAE’s mirrored response helps preserve interest rate parity and avoid capital outflows that could disrupt local financial markets.
Moreover, the decision underscores the UAE’s proactive approach to ensuring liquidity and price stability, both of which are essential for sustained economic growth. As global markets remain sensitive to inflationary pressures, central banks around the world are treading carefully—balancing the need to manage inflation with the imperative to support economic recovery. The CBUAE’s current policy reflects that same balance.
Looking ahead, the CBUAE will continue to monitor domestic and international macroeconomic indicators closely, particularly developments from major central banks. Any changes in global monetary policy, especially from the US, are likely to influence future interest rate decisions in the UAE.
For now, the CBUAE’s decision to maintain the Base Rate at 4.40 percent reflects a stable and steady approach to monetary policy, aligned with global central banking strategies and tailored to support financial and economic resilience in the UAE.