The UAE’s Central Bank maintained its benchmark borrowing rate, coinciding with the US Federal Reserve’s decision to pause its tightening cycle after increasing interest rates to their highest in 16 years to control inflation and stabilise prices.
The Fed increased its benchmark rate for the 10th consecutive time last month. It maintained its range of five percent to 5.25 percent.
Over the past 15 months, it raised rates by combined 500 basis points – the highest since 2007, shortly before the onset of the financial crisis in 2008. The Fed has now paused it to assess the effects of the tightening cycle on the economy.
In an effort to curb inflation and achieve its target range of 2 percent, the US central bank has taken decisive actions by implementing significant interest rate hikes. These measures were prompted by the surge in prices, which reached a 40-year peak of 9.1 percent in June 2022.
US inflation in May demonstrated a decline, according to the latest data released on Tuesday, with an annual rate of 4 percent compared to May’s 4.9 percent. This marks the lowest level of inflation since March 2021.
Additionally, core inflation, which excludes food and energy prices, also experienced a slight easing, with a rate of 5.3 percent, down from 5.5 percent.
Since their currencies are pegged to the US dollar, most banks in the GCC align their policy rates with the Fed. However, Kuwait is an exception within the six-member bloc as its dinar is linked to a basket of currencies.
UAE Central Bank projects steady growth
The UAE Central Bank has maintained its benchmark borrowing rate of 5.15 percent. The rate applicable to borrowing short-term liquidity from the regulator through all standing credit facilities remains 50 basis points above the base rate.
The UAE economy experienced robust growth of approximately 7.6 percent last year, marking an 11-year high, following a 3.9 percent expansion in 2021. The Central Bank projects a growth rate of 3.9 percent for 2023 and 4.3 percent for 2024.
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