UAE Central Bank follows Fed move to keep interest rates unchanged

The<a href="https://are01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.centralbank.ae%2Fsites%2Fdefault%2Ffiles%2F2022-04%2FQuarterly%2520Economic%2520Review%2520-%2520Q4%25202021%2520%2528English%2520Version%2529__0.pdf&data=05%7C01%7CMDerhally%40thenationalnews.com%7Ca13f7a8bad9d431da84408db8dbce1b9%7Ce52b6fadc5234ad692ce73ed77e9b253%7C0%7C0%7C638259614593307947%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C3000%7C%7C%7C&sdata=CHHIMbm45%2F%2BJeCbFtUuWkjfWeeVAJTK25BrB1RaYCvU%3D&reserved=0"> UAE Central Bank kept its benchmark interest rate unchanged on Wednesday, after the US Federal Reserve held its policy rate steady as Washington’s tariff war with global trading partners continues to cloud the economic outlook of the world’s biggest economy. The Federal Open Market Committee kept the borrowing rates in the 4.25 per cent to 4.50 per cent range for a second time since US President Donald Trump assumed control of the White House for another four-year term in January. The Fed, which cut rates by a cumulative 100 basis points last year, appears in no hurry to reduce its benchmark rate as it aims to counter sticky inflation amid the push for expansionary policies by the Trump administration. "Uncertainty around the economic outlook has increased," the Fed said in a statement, adding that the committee seeks to achieve "maximum employment and inflation at the rate of 2 per cent over the longer run". In January, Fed Chairman Jerome Powell said he wanted to see "real progress" on inflation before further reducing rates and reiterated his call on Wednesday. "We do not need to be in a hurry to adjust our policy stance," Mr Powell said in a media briefing in Washington on Wednesday. "It is going to be very difficult to have a precise assessment on how much inflation is coming from tariffs. Clearly, some of it is coming from tariffs," he added, noting there "may be a further delay" in bringing inflation down. Still, Fed officials projected that inflation would fall closer in line with their 2 per cent target in 2026 and 2027, suggesting they believe inflationary effects of Mr Trump's tariffs would not be persistent. But while its outlook for interest rates remained unchanged, the Fed now anticipates higher inflation. The median Fed official expects inflation to to rise by 2.7 per cent this year, up from 2.5 per cent. Core inflation is projected to increase by 2.8 per cent, also up from 2.5 per cent. The Fed also lowered its growth outlook for this year from 2.1 per cent to 1.7 per cent. The unemployment rate is expected to be about 4.4 per cent. "The Fed kept its policy rate unchanged as expected, cut the growth forecast and lifted its inflation outlook quite notably but [Mr] Powell stressed out that the potential impact of tariffs on inflation would be ‘transitory’ – implying that the Fed could continue to ease policy to support growth," said Ipek Ozkardeskaya, a senior analyst at Swissquote Bank. "As such, the Fed elegantly downplayed the long-term impact of rising inflation while cutting its growth forecast ... The decision was more dovish than expected." US markets breathed a sigh a relief following the Fed decision, Ms Ozkardeskaya added. "The US two-year yield slipped below the 4 per cent, the 10-year yield eased below 4.25 per cent. The S&P500 jumped more than 1 per cent, Nasdaq 100 gained 1.3 per cent, the Dow Jones recovered 0.93 per cent, the mid-cap stocks jumped 1.26 per cent while the Russell 2000 led gains with a more than 1.5 per cent rebound," she said in a research note on Thursday. Most central banks in the Gulf follow the Fed's policy rate moves due to their currencies being pegged to the US dollar, with <a href="https://are01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwww.thenationalnews.com%2Ftags%2Fkuwait%2F&data=05%7C02%7CSKhan%40thenationalnews.com%7Cb325b8d133024dec94e108dcd7068485%7Ce52b6fadc5234ad692ce73ed77e9b253%7C0%7C0%7C638621670220135685%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=ZxC0HP8OKphYOKC65W4oej8hc%2FHhPluXmnqOAedwZ%2Bs%3D&reserved=0">Kuwait the only exception in the six-member economic bloc as its dinar is linked to a basket of currencies. The <a href="https://are01.safelinks.protection.outlook.com/?url=https%3A%2F%2Fwam.ae%2Fen%2Fdetails%2F1395303141678&data=05%7C02%7CSKhan%40thenationalnews.com%7Cb325b8d133024dec94e108dcd7068485%7Ce52b6fadc5234ad692ce73ed77e9b253%7C0%7C0%7C638621670220141961%7CUnknown%7CTWFpbGZsb3d8eyJWIjoiMC4wLjAwMDAiLCJQIjoiV2luMzIiLCJBTiI6Ik1haWwiLCJXVCI6Mn0%3D%7C0%7C%7C%7C&sdata=5O5NLWdqMhPTAE1ZphUUscK59QJCdxGv3OX90C8na4M%3D&reserved=0">UAE Central Bank 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, which is anchored to the Fed's interest on reserve balances (IORB), signals the general stance of the Central Bank's monetary policy and provides an effective interest rate floor for overnight money market rates. The UAE’s economy , which has maintained a robust growth momentum in recent years, grew by 3.8 per cent during the first nine months of last year, driven by a strong expansion in the non-oil sectors as the country continues to diversify its economy . Real gross domestic product of the Emirates for the nine-month period to the end of September rose to Dh1.32 trillion ($359.4 billion). The non-oil economy grew by 4.5 per cent annually to Dh987 billion, accounting for nearly 75 per cent of the country's economic activity, while the oil sector made up the rest, state news agency Wam reported. The Central Bank estimates the UAE’s economy to have grown by 4 per cent in 2024 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 grow at 5 per cent this year, the CBUAE said in its fourth quarter 2024 review. The banking regulator 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 around 2 per cent this year, “driven mainly by non-tradable components of the consumer basket, partially offset by moderating energy prices". Kyle Fitzgerald contributed to this report from Washington

UAE Central Bank follows Fed move to keep interest rates unchanged

The base rate for the overnight deposit facility was maintained at 4.40 per cent