US Fed, CBUAE maintain rates

The US Federal Reserve on Wednesday maintained its benchmark federal funds rate target range at 4.25 to 4.5 per cent, citing signs of moderating economic activity in H1 2025 while noting that inflation remains “somewhat elevated”.

The Federal Open Market Committee (FOMC) reiterated its commitment to achieving maximum employment and 2 per cent inflation over the longer run. The committee acknowledged that “uncertainty about the economic outlook remains elevated” and stated it is “attentive to the risks to both sides of its dual mandate”.

In its statement, the FOMC noted that while swings in net exports continue to affect data, recent indicators suggest a moderation in economic activity growth. The unemployment rate remains low, and labour market conditions are described as solid.

Fed to reduce its holdings of Treasury securities

Looking ahead, the committee stated it will “carefully assess incoming data, the evolving outlook, and the balance of risks” when considering the extent and timing of any future adjustments to the federal funds rate.

The Fed also confirmed it would continue reducing its holdings of Treasury securities and agency debt and agency mortgage-backed securities as part of its quantitative tightening program.

The FOMC emphasised its strong commitment to supporting maximum employment and returning inflation to its 2 per cent objective. It added that it “would be prepared to adjust the stance of monetary policy as appropriate if risks emerge that could impede the attainment of the committee’s goals,” taking into account a wide range of information, including labor market conditions, inflation pressures and expectations, and financial and international developments.

CBUAE maintains base rate at 4.40 per cent

In other news, the Central Bank of the UAE (CBUAE) has decided to maintain the base rate applicable to the overnight deposit facility (ODF) at 4.40 per cent.

The decision was taken following the US Federal Reserve’s announcement to keep the interest rate 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.