Jerome Powell
US Federal Reserve Chairman Jerome Powell takes questions from reporters during a press conference after the release of the Fed policy decision to leave interest rates unchanged, at the Federal Reserve in Washington, US, on November 1, 2023. Image Credit: AP

The US Federal Reserve kept its key monetary policy rate unchanged at a 22-year-high on Wednesday – the third time it has hit the pause button this year – but left the door open to a further increase in borrowing costs. The decision was mirrored by the UAE central bank moments after the US Fed move.

"Economic activity expanded at a strong pace in the third quarter," the US central bank said in a policy statement after a two-day meeting in which officials unanimously agreed to leave the benchmark overnight interest rate in the 5.25 per cent to 5.50 per cent range where it has been since July.

After 11 interest rate hikes since March last year, inflation has fallen sharply but remains stubbornly above the Fed's long-run target of 2 percent per year - keeping pressure on officials to consider further policy action.

In a statement issued on Wednesday, the Federal Reserve said that it “remains highly attentive to inflation risks” and is “strongly committed to returning inflation to its 2 per cent objective”.

Powell left the possibility of a further rate hike on the table, noting that decisions will be made on a “meeting-by-meeting” basis, with a couple of inflation and employment reports due to be published before the Fed’s next decision on December 13.

UAE holds rates steady

Shortly after the Fed's announcement, the UAE Central Bank said it's keeping its interest rate unchanged.

"The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) without change at 5.40 per cent,” it said in a statement.

"The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate."

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates in the UAE.

Following the Fed announcement, the oil market witnessed a dip in Brent crude futures, which slipped to a three-week low of $84.63 a barrel. However, indicative of investors looking out for a haven amid uncertainty, global gold prices moved slightly higher, taking support from the US dollar's weakness.