The UAE Central Bank has decided to keep the base rate for the overnight deposit facility at 4.40%. This move follows the US Federal Reserve’s choice to hold interest rates steady. The UAE dirham is linked to the US dollar, so the country follows US monetary policy.
The central bank will also keep borrowing rates for short-term liquidity at 50 basis points above the base rate. The US Federal Reserve has kept its rate between 4.25% and 4.50% for three straight months. This pause allows the Fed to evaluate economic conditions and trade impacts.
The Federal Open Market Committee (FOMC) plans to keep reducing its Treasury and mortgage-backed securities holdings. In April, it will slow the pace of this reduction, lowering the Treasury securities cap from $25 billion to $5 billion. Last year, the Fed cut rates three times to respond to a slowing job market.
Looking ahead, experts predict a 16.7% chance of a rate cut in May and a 53.2% chance in June. Many expect two rate cuts this year, which could lower the final rate to 3.75%. However, inflation remains high at 2.8%, exceeding the 2% target, making future decisions difficult.
Goldman Sachs recently raised the recession risk for next year from 15% to 20%. Economic uncertainty, mainly due to trade policies, remains a major concern. If a recession happens, the Fed may lower rates to support growth. However, high inflation could force the Fed to maintain higher rates.
With the UAE holding rates steady, borrowing costs for loans and mortgages will stay high. The banking and financial sector, which makes up 40% of the UAE stock market, is likely to benefit. Since these sectors are less affected by tariffs, they could provide stability amid global market shifts.
