UAE Central Bank holds base rate at 3.65% following US Federal Reserve decision
The Central Bank of the UAE maintained its Overnight Deposit Facility rate at 3.65% after the US Federal Reserve held its federal funds rate unchanged for the fifth consecutive meeting, despite internal debate over potential rate increases.
UAE Central Bank holds base rate at 3.65% following US Federal Reserve decision
The Central Bank of the UAE announced Wednesday evening that it has kept the Base Rate applicable to the Overnight Deposit Facility at 3.65%, following the US Federal Reserve's decision to maintain its federal funds rate at 3.50%-3.75% for a fifth consecutive meeting.
The decision comes as the UAE dirham remains pegged to the US dollar at a fixed rate of 3.6725 dirhams per dollar, a relationship maintained since 1997 that ensures UAE monetary policy closely tracks Federal Reserve decisions. The current base rate is anchored to the US Federal Reserve's Interest on Reserve Balances rate, which stands at 3.65% and provides an effective floor for overnight money market interest rates in both countries.
The CBUAE also maintained the interest rate applicable to borrowing short-term liquidity from the central bank at 50 basis points above the Base Rate for all standing credit facilities, according to the statement.
Fed decision reflects inflation trends
The Federal Reserve's decision to hold rates steady came despite persistently high inflation and earlier spikes in energy prices in the world's largest economy. However, three members of the Federal Open Market Committee dissented from the decision, preferring a 25 basis point rate increase, indicating significant internal debate about the appropriate policy stance.
US inflation eased to 3.5% in June 2026, down from 4.2% in May, marking the first decline in five months. The improvement was driven primarily by falling energy costs following the June ceasefire between the US and Iran, which led to the reopening of the Strait of Hormuz and helped alleviate inflationary pressures.
Rate trajectory and policy tools
The current 3.65% rate represents a pause in the UAE's monetary policy adjustments after a series of rate reductions in 2025. The CBUAE lowered its base rate by 25 basis points to 3.65% in December 2025, following similar cuts in October and September, bringing total rate reductions for 2025 to 75 basis points.
The Overnight Deposit Facility, introduced by the CBUAE in July 2020 as the first step in implementing the new Dirham Monetary Framework, enables banks to deposit surplus liquidity with the central bank overnight. The facility signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.
Historical data shows the UAE interest rate reached a peak of 5.40% in July 2023 and a record low of 0.15% in July 2021, with the rate averaging 2.00% from 2007 until 2026. The current rate of 3.65% sits well above the long-term average, reflecting the tighter monetary conditions that have prevailed since central banks globally moved to combat inflation in recent years.
