The UAE Central Bank kept its benchmark interest rate unchanged on Wednesday, shadowing the US Federal Reserve’s move which held its policy steady to counter persistent inflation and expansionary economic policies of the administration of US President Donald Trump.
In its first meeting since Mr Trump took control of the White House for his second stint as president of the country with the world’s largest economy, the Federal Open Market Committee kept the borrowing rates unchanged at 4.25 per cent to 4.50 per cent range.
After cutting the interest rate a full percentage point last year, Fed chairman Jerome Powell indicated that the US central bank would probably wait and watch markets before scaling back rates to boost the economy.
The FOMC said in a statement that inflation remains "somewhat elevated" while the nation's unemployment rate "has stabilised at a low level in recent months".
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 several currencies.
The CBUAE kept its base rate for the overnight deposit facility at 4.40 per cent, it said in a statement on Wednesday.
It has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the base rate for all standing credit facilities.
The base rate signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE, the banking regulator said.
UAE retail investors are closely assessing how the latest interest rate decision will affect their portfolios. Recent data from digital trading and investment platform eToro revealed that 57 per cent of UAE retail investors factor interest rate changes into their investment strategies, underscoring the significant influence of monetary policy on market sentiment.
"Investors are in a tug-of-war between the impacts of interest rate decisions and corporate earnings, both of which play significant roles in shaping market direction," said George Naddaf, managing director for Middle East and North Africa at eToro.
The UAE economy, which has maintained a robust growth momentum since the Covid-19 pandemic-driven slowdown, grew by 3.6 per cent annually in the first half of last year driven by the non-oil sector.
The country's real gross domestic product at constant prices rose to Dh879.6 billion ($239.5 billion) for the January-June period, while non-oil GDP increased by 4.4 per cent annually to reach Dh660 billion, contributing 75 per cent to the total, the Ministry of Economy said in December.
The Central Bank estimates the UAE’s economy to have grown by 4 per cent last year and expects the pace of economic expansion to accelerate to 4.5 per cent in 2025. The non-oil economy which is projected to have expanded by 4.9 per cent last year is expected to remain steady at 5 per cent growth this year, the CBUAE said in its fourth quarter 2024 review.
The Central Bank also revised its 2024 estimate for UAE inflation downwards to 1.8 per cent from 2.2 per cent and said it expects inflation to reach about 2 per cent, “driven mainly by non-tradable components of the consumer basket, partially offset by moderating energy prices”.
