The US Federal Reserve kept its key monetary policy rate steady at a 22-year-high on Wednesday – the third consecutive time it has hit the pause button this year - but indicated that there would be three interest rate cuts coming in 2024. The rate decision was mirrored by the UAE central bank moments after the US Fed move.
With the inflation rate easing in the US economy, the Federal Reserve signaled in new economic projections that the historic tightening of US monetary policy engineered over the last two years is at an end and lower borrowing costs are coming in 2024.
After a two-day meeting in which officials 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, the Fed committee members also penciled in at least three rate cuts in 2024, which is less than market pricing of four, but more aggressive than what officials had previously indicated.
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 has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the Base Rate for all standing credit facilities.
The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.
US inflation eases
After the US central bank officials took explicit account of the fact that inflation "has eased over the past year," the committee said it would watch the economy to see if "any" additional rate hikes are needed. This implies that, after months of aggressive tightening and hinting towards moving rates higher, they may not need to again.
A near unanimous 17 of 19 US Fed officials project that the policy rate will be lower by the end of 2024 than it is now. No officials see rates higher by the end of next year.
After raising the policy rate by 5.25 percentage points since March of 2022 in one of the swiftest Fed reactions to rising inflation, the central bank has now kept the policy rate on hold since July as inflation edges closer to its target.
- with inputs from Reuters