Following the US Federal Reserve’s largest interest rate rise since 1994, the Central Bank of the UAE (CBUAE) has decided to boost interest rates. The Fed increased interest rates by three-quarters of a percentage point on Wednesday.
While announcing the interest rate hike, US Federal Reserve Chairman Jerome Powell said that the US central bank was attempting to contain inflation without triggering a recession. The Fed said that its main interest rate will be raised by three-quarters of a percentage point to a range of 1.5% to 1.75%. Powell also hinted at another rate rise following the July meeting of the US Federal Reserve.
The increase, the third since March, comes amid surprisingly high inflation in the United States last month. More rises are predicted, adding to the economy’s uncertainties. As central banks throughout the world adopt similar actions, it signals a significant shift in the global economy, where firms and people have enjoyed years of low borrowing rates.
After the US Federal Reserve Board announced its decision to raise the interest on reserve balances (IORB) by 75 basis points, the UAE Central Bank increased the base rate applicable to overnight deposit facilities (ODF) by 75 basis points, effective Thursday, 16 June 2022.
The CBUAE’s base rate, which is linked to the IORB of the US Federal Reserve, reflects the overall attitude of the central bank’s monetary policy. It also acts as an effective floor for overnight money market rates.
According to Bloomberg, a rising number of experts predict a slowdown in 2023 as the Fed tries to control inflation, which is at its highest level in four decades. A survey conducted on June 13 states over 70% of academic economists questioned by the Financial Times and the University of Chicago predicts a decline in GDP next year.
Meanwhile, the cost of borrowing short-term liquidity from the UAE central bank will be kept at 50 basis points over the base rate, according to Wam, the state-run news agency.
