Following the US Federal Reserve Board’s announcement to keep the Interest on Reserve Balances (IORB) unchanged, the Central Bank of the UAE (CBUAE) has followed suit and maintained the Base Rate applicable to the Overnight Deposit Facility (ODF).
Announcing this on Wednesday after the decision of the Fed, CBUAE maintained the rate at 5.15 percent.
The CBUAE has also decided to maintain the rate applicable to borrowing short-term liquidity through all standing credit facilities at 50 basis points above the Base Rate.
A stronger-than-expected economy and a decline in inflation led to Federal Reserve’s decision to leave interest rates unchanged, but it did hint that borrowing costs may still need to rise by as much as half of a percentage point by the end of this year.
The decision to leave the benchmark interest rate at about 5.1 percent follows 10 straight hikes in 15 months. The Fed kept the key borrowing rate in a target range of 5-5.25 percent, but forecast it would raise interest rates as high as 5.6 percent before 2023 is over, based on its projections.
US stocks fell after the policy decision, mostly reacting to the possibility of further hikes later in the year, but by the end of the day the Nasdaq Composite and the S&P 500 indexes had closed slightly higher. The Dow Jones Industrial Average was off 0.68 percent.
Fed Chair Jerome Powell described US growth and the job market as holding up better than expected under the weight of the aggressive monetary policy tightening of the past year. He said the pause would allow the Fed to gather more information before determining if rates do need to rise again.
Powell said that while inflation is below its peak, it is still well above the central bank’s target of 2 percent.
While inflation is down from its peak of 9.1 percent to about 4 percent in May, Powell said: “We’re two and a quarter years into this, and forecasters, including Fed forecasters, have consistently thought that inflation was about to turn down … and been wrong. We want to get inflation down to 2 percent, and we just don’t see that yet.”
In a post-meeting statement, the Fed said: “Holding the target range steady at this meeting allows the Committee to assess additional information and its implications for monetary policy.”
The Fed next meet on July 25-26.
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