US Federal Reserve and UAE Central Bank maintain key interest rates at current levels

The US Federal Reserve has decided to maintain its key monetary policy rate at a 22-year-high, signaling a cautious approach towards potential reductions in borrowing costs. This marks the fourth consecutive time the Fed has kept rates steady this year, indicating a reluctance to make any immediate changes.

In a statement released by the Federal Open Market Committee (FOMC), it was reiterated that any reduction in the target range would only be considered once there is greater confidence that inflation is moving towards the desired 2 per cent mark. While the Fed acknowledged the possibility of future rate cuts, it also expressed concerns about recent disappointing inflation readings in the US economy.

The decision to keep rates unchanged comes after the FOMC’s two-day policy meeting, where the committee was initially expected to maintain rates in the range of 5.25 per cent to 5.5 per cent. This high rate, first reached in July, reflects the Fed’s efforts to balance economic growth with inflation control.

Following the Fed’s announcement, the UAE Central Bank also announced its decision to keep interest rates unchanged. The Base Rate applicable to the Overnight Deposit Facility (ODF) will remain at 5.40 per cent, in line with the US Federal Reserve’s decision to keep the interest on Reserve Balances (IORB) unchanged.

The CBUAE has further decided to maintain the interest rate for borrowing short-term liquidity at 50 basis points above the Base Rate for all standing credit facilities. This decision is in line with the general stance of monetary policy and provides stability to overnight money market interest rates in the UAE.

Despite the Fed’s indication of a potential rate cut in the future, analysts remain uncertain about the timing of such a move. Fed officials have expressed concerns about the lack of progress towards the 2 per cent inflation target, highlighting the need for more confidence in the economy’s trajectory.

Overall, the decision to keep rates steady reflects the Fed’s cautious approach to monetary policy and its commitment to balancing economic growth with inflation control. As the global economy continues to navigate uncertain waters, central banks around the world are closely monitoring developments to ensure stability and growth in the financial markets.