The Central Bank of the UAE (CBUAE) has decided to raise the Base Rate applicable to the Overnight Deposit Facility (ODF) by 50 basis points, effective from Thursday.
This decision was taken following the US Federal Reserve Board’s announcement on Wednesday to increase the Interest on Reserve Balances (IORB) by 50 basis points.
The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate.
The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates.
The Federal Reserve on Wednesday announced its biggest rate hike since 2000, with a half percentage point increase as it works to crush soaring US inflation.
With inflation at the highest rate in four decades, Federal Reserve Chair Jerome Powell sent a message directly to the American people, expressing concern for the pain caused by rising prices, and pledging to use all available tools to bring them down.
But he told reporters he remains confident the economy is strong enough to withstand rate increases without tipping into a recession.
After a quarter-point hike in March, the US central bank’s policy-setting Federal Open Market Committee (FOMC) pushed the benchmark interest rate above 0.75 percent as it works to cool the economy, and confirmed more increases “will be appropriate.”
The hike will raise the costs of all types of borrowing, from mortgages to credit cards to car loans, cooling demand and business activity.
Inflation has become an overriding concern after the world’s largest economy saw annual consumer prices surge 8.5 percent over the 12 months to March — the biggest jump since December 1981.