The US Federal Reserve kept its key monetary policy rate steady at a 23-year-high on Wednesday – the seventh consecutive time it has hit the pause button, and penciled in just one rate cut this year, down from the three expected in March.
As expected, the Federal Open Market Committee (FOMC) voted unanimously to maintain its benchmark interest rate between 5.25 per cent and 5.5 per cent in the world's top economy, saying in a statement that "modest" progress had been made toward its long-term inflation target of two per cent.
The officials also raised their inflation forecasts for 2024 and kept their growth outlook unchanged. The decision comes after US stocks earlier touched record highs on softer-than-expected inflation data. Economists have widely been expecting officials to pencil in one or two rate cuts this year, instead of the three they forecast in March.
UAE holds interest 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.
"This decision was taken following the US Federal Reserve’s announcement today to keep the interest on Reserve Balances (IORB) unchanged."
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.)
Wary of cutting rates too soon
The latest announcement suggests that the US central bank officials remain wary about cutting rates too soon, despite consumer inflation data published earlier Wednesday, which pointed to a slowdown in the rate of price increases in May.
Alongside its interest rate decision, the Fed also updated economic forecasts from the members of its rate-setting Federal Open Market Committee (FOMC). Policymakers lowered their individual forecasts for the number of rate cuts they expect this year.
This means that FOMC participants only expect one 0.25 percentage point cut before year-end, two less than in the last update in March. Economists have widely been expecting officials to pencil in one or two rate cuts this year, instead of the three they forecast in March.
- with inputs from Reuters
