The Central Bank of the United Arab Emirates (CBUAE) has announced that it will maintain the Base Rate for its Overnight Deposit Facility (ODF) at 4.40 percent, reaffirming its alignment with the United States Federal Reserve’s latest monetary policy stance. The decision, announced on March 21, 2025, closely follows the U.S. Federal Reserve’s March 19 statement, which confirmed that it would keep the Interest Rate on Reserve Balances (IORB) unchanged.
In a statement, the CBUAE emphasized that the Base Rate—anchored to the US Fed’s IORB—serves as the primary signaling mechanism for the UAE’s monetary policy direction. It also establishes an effective lower bound for overnight money market rates within the country. This approach ensures monetary policy stability and supports liquidity management in the financial system, particularly given the dirham’s peg to the US dollar.
Alongside the Base Rate, the CBUAE has also opted to maintain the interest rate applicable to short-term borrowing of liquidity from the central bank. This rate remains set at 50 basis points above the Base Rate across all standing credit facilities. This move reaffirms the central bank’s commitment to a balanced and responsive monetary framework that aligns with global developments while safeguarding domestic financial conditions.
The central bank’s decision underscores the UAE’s continued reliance on a policy synchronization strategy with the US Federal Reserve. Due to the UAE dirham’s longstanding peg to the dollar, the CBUAE generally mirrors US interest rate moves to maintain exchange rate stability and ensure that capital flows remain steady. Any significant deviation between UAE and US rates could otherwise result in capital flight or currency volatility, undermining financial market confidence.
By keeping the base rate steady at 4.40 percent, the CBUAE signals that it remains focused on supporting economic resilience and managing inflation expectations without stifling growth. In the face of evolving global economic headwinds and regional market uncertainties, maintaining a steady rate offers predictability to investors, banks, and businesses operating in the UAE’s financial ecosystem.
This interest rate decision comes at a time when central banks globally are navigating complex trade-offs between inflation control and economic recovery. While inflation has moderated from recent highs in many parts of the world, including the Gulf region, central banks are proceeding cautiously to ensure that price stability is not compromised by premature rate cuts. For the UAE, a diversified economy with a robust banking sector and a growing non-oil segment, such measured monetary policy plays a critical role in anchoring market sentiment and long-term investment.
Financial institutions across the UAE are expected to adjust their lending and deposit strategies accordingly, as the Base Rate directly influences interbank rates, consumer loans, and corporate credit. While the decision to hold rates was widely anticipated by market analysts, it reinforces the CBUAE’s cautious but stable approach to navigating the ongoing monetary policy cycle.
As the global economic environment continues to evolve, further adjustments by the CBUAE will likely hinge on future decisions by the US Federal Reserve and domestic macroeconomic indicators. For now, stakeholders in the UAE’s financial sector can continue to operate with a degree of certainty, supported by a transparent and internationally anchored monetary policy framework.