The UAE decision follows the US Federal Reserve’s decision on Wednesday to keep interest rates unchanged amid inflation having not adequately lowered
Interest rates in the UAE have remained unchanged at the base rate applicable to the overnight deposit facility (ODF) of 5.40 per cent.
The decision follows the US Federal Reserve’s decision on Wednesday to keep interest rates unchanged amid inflation having not adequately lowered. The Central Bank of the UAE tracks the US Federal Reserve when it comes to interest rates. This is as the country’s currency is pegged to the US dollar at a fixed rate of Dhs3.67.
Fed sees three rate cuts in 2024
Federal Reserve Chair Jerome Powell said on Wednesday recent high inflation readings had not changed the underlying “story” of slowly easing price pressures in the US as the central bank stayed on track for three interest rate cuts this year and affirmed that solid economic growth will continue.
The Fed also left interest rates unchanged and released new quarterly economic projections that showed officials now expect the economy to grow 2.1 per cent this year, above what’s considered the US economy’s long-run potential and a substantial upgrade from the 1.4 per cent growth seen as of December. At the same time, the unemployment rate is only expected to hit 4 per cent by the end of 2024, barely changed from the current 3.9 per cent level, while a key measure of inflation is projected to keep falling, though at a somewhat slower pace, to end the year at 2.6 per cent.
In the context of declining interest rates, the projections showed the Fed still foresees a so-called “soft landing” from the post-pandemic spike of inflation to a 40-year high, though Powell said recent data had kept officials on a cautious footing to ensure price pressures do continue to ease.
Speaking after a policy meeting at which officials left the benchmark overnight interest rate in the 5.25 per cent – 5.50 per cent range and held onto their outlook for three cuts in borrowing costs this year, Powell said the timing of those reductions still depends on officials becoming more secure that inflation will continue to decline towards the Fed’s 2 per cent target even as the economy continues to outperform expectations.
Inflation reports at the beginning of the year showed price pressures remained “elevated,” in the Fed’s view, but “haven’t really changed the overall story, which is that of inflation moving down gradually on a sometimes bumpy road to 2 per cent,” Powell said in a press conference.
But “I also don’t think that those readings added to anyone’s confidence” of a continued decline in inflation, Powell said, comments that put weight on upcoming inflation reports to confirm that price pressures continue to ease.
If they don’t, Powell said the Fed would maintain high interest rates as long as needed. Asked explicitly about recent comments to Congress that the Fed was “not far” from gaining the confidence it needs to cut rates, he sidestepped repeating those words and instead said his “main message” was that the US central bank still needed more data to change policy.
“It’s appropriate for us to be careful,” the Fed chief said, reiterating a go-slow approach to rate cuts that has been buttressed by the economy’s ongoing strength, with officials saying they are in no rush to ease monetary policy while the economy and the job market continue to grow.
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