UAE central bank raises base rate

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The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate…reports Asian Lite News

The Central Bank of the UAE (CBUAE) has decided to raise the Base Rate applicable to the Overnight Deposit Facility (ODF) by 75 basis points, effective from today, 28th July, 2022.

This decision was taken following the US Federal Reserve Board’s announcement on 27th July, 2022, to increase the Interest on Reserve Balances (IORB) by 75 basis points.

The CBUAE also has decided to maintain the rate applicable to borrowing short-term liquidity from the CBUAE through all standing credit facilities at 50 basis points above the Base Rate.

The Base Rate, which is anchored to the US Federal Reserve’s IORB, signals the general stance of the CBUAE’s monetary policy. It also provides an effective interest rate floor for overnight money market rates.

The Central Bank of Bahrain (CBB) today decided to raise its key policy interest rate on the one-week deposit facility by 75 basis points from 2.50 percent to 3.25 percent.

The CBB has also decided to raise the overnight deposit rate from 2.25 percent to 3.00 percent, the four-week deposit rate from 3.25 percent to 4.00 percent, and the lending rates from 3.75 percent to 4.50 percent.

Bahrain News Agency quoted the Central Bank of Bahrain as saying that it continues to monitor global and local market developments closely in order to take any further necessary actions to maintain monetary and financial stability in the Kingdom.

The US Federal Reserve raised rates by 75 percentage point, same as that in June.

“The labour market is extremely tight, and inflation is too high,” Fed Chair Jerome Powell said at a news conference, explaining the unusually large hike.

Recent indicators of spending and production have softened,” the Fed said in a statement. “Nonetheless, job gains have been robust in recent months, and the unemployment rate has remained low.”

High interest rates are intended to cut spending “specially on mortgages and autos” and cool demand in the economy and therefore prices.

At the same time, the US Federal Reserve has to walk a thin line here because too many and too steep a rate hike could trigger recession and that’s a looming fear.

Asked about the possibility of recession, Powell said at the news conference, “I do not think the US is currently in a recession and the reason is there are too many areas of the economy that are performing too well.”

He added: “This is a very strong labor market … it doesn’t make sense that the economy would be in a recession with this kind of thing happening.”

“Inflation remains elevated, reflecting supply and demand imbalances related to the pandemic, higher food and energy prices, and broader price pressures,” the Federal Open Market Committee said on Wednesday as it lifted the policy rate to a range between 2.25 and 2.50 per cent in a unanimous vote.

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