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The Central Bank of the UAE decided to maintain the base rate applicable to the overnight deposit facility at 3.65 percent, according to a press release issued in Abu Dhabi. This step follows the US Federal Reserve’s announcement to keep the interest rate on reserve balances at the same level without alteration. The CBUAE also held the interest rate for short-term liquidity borrowing from the central bank at 50 basis points above the base rate for all standing credit facilities. In its statement, the authority described how the base rate, anchored to the Federal Reserve’s policy tool, signals the general stance of monetary policy while providing an effective floor for overnight money market interest rates across the UAE.
This decision leaves the rate at the level established after multiple reductions throughout 2025. The CBUAE lowered the base rate by a cumulative 75 basis points in three separate cuts that year, its annual report for 2025 indicated, bringing the figure from 4.40 percent at the end of 2024 to the current setting. Overnight rates in the UAE closely tracked the adjustments with the Dirham Overnight Index Average averaging 5 basis points below the base rate during 2025, a narrowing from the previous year’s spread that the report attributed partly to the introduction of the overnight Murabaha facility in March. Such alignment has helped stabilize funding conditions for domestic banks operating under the dollar-pegged currency regime.
A quarterly economic review from the CBUAE noted that market rates responded promptly to the late-2025 easing. The Dirham Overnight Index Average fell by 18 basis points on average in December 2025 and by an additional 7 basis points in January 2026 as liquidity remained abundant. Banks’ aggregate balance expanded by AED 65.3 billion in the fourth quarter of 2025 to reach AED 427 billion, driven primarily by net foreign asset inflows of AED 71.1 billion that more than offset other balance sheet movements. M-Bill yields declined along the curve in line with US Treasury bill rates during the period of policy accommodation.
The July 29 announcement from the CBUAE comes as the US Federal Reserve maintained its target range for the federal funds rate at 3.5 to 3.75 percent following a divided 9-to-3 vote among committee members. Minutes from the Federal Open Market Committee meeting indicated that the interest rate on reserve balances was kept at 3.65 percent effective from mid-June. This parallel approach reflects the structural linkage between UAE and US monetary settings necessitated by the dirham’s long-standing peg to the American currency at a fixed rate.
Figures from the central bank’s 2025 annual report show that the policy adjustments contributed to growth in broad monetary aggregates while preserving system-wide liquidity. The average gap between the Dirham Overnight Index Average and the base rate narrowed by 15 basis points compared with 2024 levels, demonstrating effective policy transmission. Such outcomes have supported the banking sector’s ability to intermediate credit without disruption even as global interest rate expectations evolved over the course of the year.
