The Central Bank of the United Arab Emirates raised its base rate by 25 basis points to 3.9%. The decision, announced on 16 September, took effect on 17 September after the US Federal Reserve raised its target range by 25 basis points to 3.75%–4%. The official announcement said the rate on short-term borrowing remained 50 basis points above the base rate. Reuters separately reported that the UAE was among the dollar-pegged Gulf jurisdictions that followed the Federal Reserve.
The base rate is anchored to the interest rate the US Federal Reserve pays on reserve balances. The central bank says the Base Rate signals the general stance of monetary policy and provides an effective floor for overnight money-market rates in the UAE. Because the dirham is pegged to the US dollar, UAE monetary settings generally track changes in US rates.
PEG GUIDED THE POLICY MOVE
The increase from 3.65% to 3.9% maintained the established alignment between UAE and US monetary policy. The Saudi Central Bank raised its repo rate by 25 basis points to 4.5% and its reverse repo rate to 4%. Qatar, Bahrain and Oman also raised their policy rates, while Kuwait kept its discount rate at 3.5%.
Gulf Business reported that for UAE consumers and companies the impact could increasingly be felt through mortgages and business loans, particularly borrowing linked to the Emirates Interbank Offered Rate (Eibor).
BANK PRICING IS THE NEXT SIGNAL
The Fed’s move was its first rate increase in more than three years, Reuters reported.