UAE keeps base rate unchanged at 3.65%, pushing back expectations of lower borrowing costs.
Dubai: UAE borrowers hoping for cheaper mortgages, car loans, and business financing may need to wait longer, after the Central Bank of the UAE held its base rate steady at 3.65% following the US Federal Reserve’s decision to keep interest rates unchanged.
The decision, announced on June 17, came after the US Federal Reserve kept the interest rate on reserve balances unchanged. The Central Bank of the UAE (CBUAE) also said it maintained the rate applied to short-term borrowing from the central bank at 50 basis points above the base rate for all standing credit facilities.
The Base Rate, which applies to the Overnight Deposit Facility, is linked to the US Federal Reserve’s interest rate on reserve balances. It reflects the overall direction of UAE monetary policy and acts as a floor for overnight money market rates in the country.
Because the UAE dirham is pegged to the US dollar, the country’s interest rate policy closely follows the US Federal Reserve’s decisions. As a result, domestic rates generally move in line with the Fed, even when local inflation or economic conditions differ from those in the United States.
Fed tone keeps markets cautious
The Central Bank of the UAE (CBUAE) decision followed the US Federal Reserve’s move to keep its benchmark rate unchanged, even as nearly half of US policymakers indicated openness to a rate hike later this year.
Nine Fed officials supported higher rates in 2026, while six backed two quarter-point increases. This marks a notable shift from March, when no policymakers expected a hike and projections had pointed instead to a possible rate cut this year.
The revised outlook suggests that US policymakers remain concerned about inflation staying above target, despite political pressure from President Donald Trump to reduce interest rates.
New Fed Chair Kevin Warsh also removed language that previously signalled the central bank’s next move could be a rate cut, giving policymakers greater flexibility if inflation remains persistent.
Warsh said the Federal Reserve remains focused on restoring price stability.
“We’ve missed (on inflation) for five years and we’re gonna fix that,” he said.
