The UAE has joined other Gulf central banks in raising interest rates, following a hike by the US Federal Reserve.
The Central Bank of the UAE has gone on to increase the base rate for the overnight deposit facility (ODF) by 25 basis points, from 4.65% to 4.90%, effective immediately.
This decision was made in response to the US Federal Reserve Board’s announcement on March 22 to raise the interest rate on reserve balances by 25 basis points. The CBUAE has also decided to keep the rate relevant to borrowing short-term funding from the CBUAE through all existing credit facilities at 50 basis points over the Base Rate.
The UAE has joined Gulf banks in raising interest rates
The Base Rate, which is linked to the IORB of the US Federal Reserve, conveys the general direction of the CBUAE’s monetary policies.
It also serves as an appropriate interest rate floor for overnight finance market rates. Meanwhile, Gulf central banks boosted their benchmark lending rates. The Saudi Central Bank increased the rate of Repurchase Agreement (Repo) by 25 basis points to 5.5% and the rate of Reverse Repurchase Agreement (Reverse Repo) by 25 basis points to 5%.
The one-week reserve facility rate jumped to 5.75% from 5.5%, and the overnight deposit rate went to 5.5% from 5.25%, as per a tweet from Bahrain’s Central Bank. The Central Bank of Qatar surged its interest rates by 25 basis points from March 23, raising deposit, lending, as well as repo rates by 25 basis points to 5.25%, 5.75%, and 5.5%, respectively. Gold prices jumped on March 22 as the Fed softened its stance on inflation control. Market gold was up 1.7% at $1,973.52 per ounce, having risen as much as 2%.
According to Reuters, US gold futures finished 0.4% higher at $1,949.60 before the Fed decision.
The Fed hiked interest rates by a quarter percentage point but also indicated that it was almost pausing more increases in borrowing costs amid recent market volatility.