UAE Central Bank raises overnight rates after US Fed move

The decision follows the US Federal Reserve Board's move on Wednesday to raise the interest on excess reserves (IOER)

  
General view of Central Bank of The U.A.E. on January 3, 2017 in Dubai, United Arab Emirates.

General view of Central Bank of The U.A.E. on January 3, 2017 in Dubai, United Arab Emirates.

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The Central Bank of the UAE has raised the base rate applicable on the overnight deposit facility (ODF) by 5 basis points (bps) to 15 bps, effective from Thursday, 17 June 2021.

The decision follows the US Federal Reserve Board’s move on Wednesday to raise the interest on excess reserves (IOER) by 5 basis points from 0.1 percent to 0.15 percent.

The base rate, which is pinned to the US Federal Reserve’s IOER, signals the general stance of the CBUAE’s monetary policy. “It also provides an effective interest rate floor for overnight money market rates,” the bank said in a statement.

Central banks in the GCC mimic the US Fed's moves due to the peg of their currencies to the US dollar. Kuwait is the only Gulf country to link its dinar to a basket of currencies.

The UAE regulator also decided to maintain the rate applicable to borrowing short-term liquidity from the Central Bank through all standing credit facilities at 50 basis points above the base rate.

Federal Reserve officials Wednesday held interest rates near zero but signaled two possible rate hikes by the end of 2023 as the US economy begins to recover from the coronavirus pandemic.

(Writing by Brinda Darasha; editing by Daniel Luiz)

brinda.darasha@refinitiv.com

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