Dubai, UAE — The Central Bank of the UAE (CBUAE) said it would keep its Base Rate for the Overnight Deposit Facility unchanged at 3.65%, following a decision by the Federal Reserve to hold interest rates steady, underscoring the Gulf’s close monetary alignment with Washington.
The U.S. central bank left its benchmark rate unchanged as policymakers weighed persistent inflation risks and growing global uncertainty.
Fed Chair Jerome Powell signalled a cautious approach, noting that elevated energy prices and geopolitical tensions could complicate the inflation outlook, even as markets continue to expect potential easing later in the year.
Mirroring the Fed’s move, the CBUAE said it would also maintain the rate applicable to short-term borrowing at 50 basis points above the Base Rate for all standing credit facilities.
The Base Rate, anchored to the Fed’s Interest Rate on Reserve Balances (IORB), acts as a key signal of the UAE’s monetary policy stance and sets a floor for overnight money market rates.
The Qatar Central Bank (QCB) also maintained the current interest rates for QCB Deposit Rate (QCBDR), QCB Lending Rate (QCBLR), and QCB Repo Rate (QCBRR) following an assessment of Qatar’s current monetary policy.
In a statement published on its official X platform, the QCB confirmed that it will keep the QCBDR at 3.85 percent and the QCBLR at 4.35 percent, and QCBRR at 4.10 percent. (QNA)
Central Banks of Saudi Arabia, Qatar, Bahrain and Oman typically adjust their policy rates in lockstep with the Fed due to their currencies being pegged to the U.S. dollar. Kuwait remains a partial exception, with its currency linked to a basket, allowing for slightly more flexibility.
Escalating tensions in the Middle East and attacks on key energy infrastructure have pushed crude prices sharply higher, with Brent rising above $100 a barrel, fuelling fresh inflation concerns globally. The surge in oil prices is boosting fiscal revenues for Gulf exporters but also complicating monetary policy by increasing imported inflation risks.
For Gulf central banks, the challenge lies in balancing domestic economic conditions with the constraints of dollar pegs. The linkage requires policymakers to closely mirror U.S. rate decisions to maintain currency stability and avoid capital outflows, effectively limiting independent monetary policy.