UAE Central Bank keeps its base rate at 3.9% after the US Fed holds

The Central Bank of the UAE (CBUAE) has kept its base rate at 3.9%. The decision, announced on 28 October, followed the US Federal Reserve's meeting the same day, at which the Fed left its own rates unchanged, with the federal funds rate in a range of 3.75% to 4%.

The base rate is the rate the central bank pays banks on money they leave with it overnight, and it sets the floor for borrowing costs across the country. The central bank also kept the rate for short-term borrowing by banks from its standing credit facility at 50 basis points above the base rate, Gulf News and Emirates 24|7 reported.

The UAE follows the Fed because the dirham is pegged to the US dollar at a fixed rate, so the central bank ties its base rate to the interest the Fed pays on bank reserves. When the Fed moves, the UAE usually moves the same day. The last change came in September, when the CBUAE raised the base rate by a quarter of a percentage point, from 3.65% to 3.9%, with effect from 17 September, after a rise by the Fed.

For people in Dubai, a hold means the cost of borrowing set by the central bank stays where it has been since mid-September. Loans with a variable rate, such as many mortgages and some business loans, are usually priced from EIBOR, the rate banks charge each other, plus a margin, and EIBOR tends to move with the base rate. Savings and fixed deposit rates are set by each bank and also follow it, so neither should change because of this decision alone.

Anyone with a variable-rate loan can check the reference rate and margin in their loan agreement, or ask their bank, to see when their payment is next reset. The Fed's next policy meeting is in December, and the CBUAE announces its own decision on the day the Fed does.