CBUAE raises Base Rate by 25 basis points to 3.90%
The Central Bank of the UAE has increased the Base Rate for the Overnight Deposit Facility by 25 basis points, aligning with a comparable move by the US Federal Reserve and keeping borrowing charges at a 50 bps spread.
Central Bank aligns UAE policy with US rate rise
The Central Bank of the UAE (CBUAE) has raised the Base Rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points, taking it from 3.65% to 3.90%, effective from Thursday 17 September 2026. The decision follows the United States Federal Reserve’s announcement on the same day to raise the Interest Rate on Reserve Balances (IORB) by 25 basis points.
The CBUAE said it will maintain the interest rate charged for borrowing short‑term liquidity from the Central Bank at 50 basis points above the Base Rate for all standing credit facilities. That means the cost of borrowing from the CBUAE under those facilities will rise in step with the new Base Rate.
The Base Rate is anchored to the US Federal Reserve’s IORB. The Central Bank noted that this linkage signals the general stance of monetary policy in the UAE and provides an effective floor for overnight money market interest rates domestically. By mirroring the Fed’s increase, the CBUAE aims to preserve alignment with global interest‑rate developments and maintain orderly functioning of local money markets.
For banks, the immediate effect is a modest increase in the price of overnight liquidity and the standing credit facilities provided by the Central Bank. Lenders may reassess pricing for short‑term funding and could, over time, reflect higher funding costs in their own deposit and lending rates. The extent and timing of any pass‑through to consumers and businesses will depend on individual banks’ funding structures and pricing strategies.
The CBUAE’s statement focused on operational settings rather than forward guidance, reiterating the Base Rate’s role in anchoring overnight rates. Market participants commonly view such adjustments as a tool to preserve domestic monetary conditions in step with international developments, particularly when domestic currencies are closely linked to the US dollar.
By keeping the spread on borrowing facilities unchanged at 50 basis points above the Base Rate, the Central Bank preserved the relative cost of accessing short‑term central liquidity even as the absolute level increased. The move ensures that the standing lending terms remain predictable for banks requiring temporary support.
Investors and firms with exposure to variable short‑term rates should expect somewhat tighter liquidity conditions in the near term. The Central Bank’s action reflects the impact of international rate moves on UAE policy settings and the ongoing interaction between global monetary developments and domestic financial stability considerations.
Source: WAM