The UAE Central Bank on Wednesday raised the Base Rate applicable to the Overnight Deposit Facility by 25 basis points to 3.90%, following the US Federal Reserve’s widely anticipated quarter-point increase in interest rates.
The move comes as the UAE maintains its longstanding policy of aligning key rates with the US due to the dirham’s peg to the dollar, a mechanism that helps preserve monetary stability and currency competitiveness.
According to Vijay Valecha, Chief Investment Officer at Century Financial, the Fed’s decision was largely expected after a pause of more than three years. “The dirham is pegged to the dollar, so the UAE Central Bank typically moves its Base Rate in step with the Fed,” he said. The Base Rate, previously at 3.65%, “anchors overnight money-market rates, and EIBOR, the interbank benchmark for most local borrowing, moves closely with it.”
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Valecha said the increase is likely to feed through to variable-rate mortgages and corporate borrowing costs. “When it rises, lending rates across the system rise too,” he said, adding that business borrowing costs could increase for companies already facing higher energy and shipping costs.
Madhur Kakkar, founder and CEO of Elevate Financial Services, had forecast the move ahead of the Fed decision, noting that a 25-basis-point increase would take the UAE Base Rate from 3.65% to 3.90%. “Given the dirham’s peg to the US dollar, the Central Bank of the UAE is likely to closely follow the move,” he said.
Kakkar said the impact on consumers would be gradual. “Depositors are likely to see improved savings and term deposit returns sooner than borrowers experience higher repayment costs,” he said. He estimated that a full 25-basis-point increase on an outstanding AED1.5 million mortgage with 25 years remaining would add about AED210 to monthly repayments, or roughly AED2,500 annually.
Analysts said markets will now focus on the Fed’s future policy direction and whether policymakers maintain a higher-for-longer interest-rate stance into 2027.
Source: Khaleej Times