Central bank expected to keep 2 percent benchmark rate for rest of the year
The UAE is not expected to hike interest rates until 2018, according to a report by BMI Research.
The Fitch Group company predicted the UAE Central Bank will keep its benchmark interest rate at 2 percent for the remainder of 2017, in line with interest rate forecasts for the US. The Fed funds rate currently stands at 1-1.25 percent.
Inflation in the UAE has remained steady despite subsidy cuts over the past two years, removing any inclination to hike, said BMI’s latest report. It added that the UAE will seek to maintain the differential between the two rates, “so as not to exert undue pressure on the dirham’s peg to the dollar while growth remains lucklustre”.
The UAE is then expected to impose a cumulative 100 basis points of hikes over 2018-2019, the report said.
It added that moderate inflationary pressures will prevent the UAE from hiking faster than the US, especially given that real GDP growth will be fairly weak in a low oil price environment.