UAE Central Bank holds rates steady following Fed lead

The UAE Central Bank kept its benchmark interest rate steady, following the US Federal Reserve’s move to maintain its policy rate for the third consecutive time this year amid a slowing economy and a gradual drop in core inflation.

The US central bank left the federal funds rate between 5.25 per cent and 5.5 per cent at the end of its two-day meeting on Wednesday.

The rate is at its highest level since 2001, as the Fed tries to bring inflation down to its target range of 2 per cent.

Consumer prices in the world’s biggest economy soared to a four-decade high in June last year.

While inflation in the US in November increased 3.1 per cent from 12 months earlier, it has decelerated from its four-decade peak of 9.1 per cent in June 2022.

The rising worker pay, an important driver of inflation that is a main concern of the US central bank has also extended its slow decline last month with wages rising at a 4 per cent annual rate, according to data from the Bureau of Labour Statistics.

The wage rise, although slowing is still above the 3 per cent level policymakers view as consistent with their 2 per cent inflation target.

The Fed had kept the rates steady at its last two meetings but is widely expected to cut the benchmark rate in the first half of 2024 on growing optimism that inflation will fall further.

Markets had recently been pricing in a rate cut by the Fed as soon as March next year, but traders pared those bets and are now targeting May for the first rate cut after the central bank began its rate-increase cycle in March 2022.

Most central banks in the GCC follow the Fed’s policy rate moves due to their currencies being pegged to the US dollar, with Kuwait the only exception in the six-member economic bloc as its dinar is linked to a basket of currencies.

The UAE Central Bank maintained its base rate for the overnight deposit facility at 5.4 per cent, effective from Thursday.

It also maintained the rate applicable to borrowing short-term liquidity from the regulator through all standing credit facilities at 50 bps above the base rate, the regulator said on Wednesday.