The UAE Central Bank has decided to cut the base rate on overnight deposit facilities by 25 basis points on Wednesday, October 29.

The rates, effective Thursday, October 30, have gone from 4.15 per cent to 3.90 per cent.

The apex bank’s decision comes after the US Federal Reserve lowered its interest rates by 25 basis points on Wednesday, for the second time this year. The UAE follows US monetary policy as the dirham is pegged to the US dollar.

It has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the apex bank 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 Interest Rate on Reserve Balances, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.

US rate cut

The decision to cut rates boosts the US economy at a time businesses are still digesting the effects of President Donald Trump's sweeping tariffs, and buys policymakers some more time as they wait for the end of the government shutdown.

Republicans and Democrats remain politically gridlocked almost a month after the start of the shutdown, which has resulted in a suspension of publication of almost all official data.

Fed officials have in recent months flagged concerns that the labor market is cooling, causing them to shift their attention to bolstering hiring, even though inflation remains above the Fed's target.

Quarter percentage-point cuts in both October and December were largely baked into the financial markets before the meeting, mirroring the median expectation laid out by Fed policymakers in their most recent economic forecasts, published last month.

But many analysts expect Fed chair Jerome Powell will tell reporters during the bank's post-decision press conference on Wednesday that the rate-setting Federal Open Market Committee (FOMC) is keeping an open mind about the following meeting.

"I don't think it's a given that there will be a majority of FOMC voters that will favor easing in December," EY chief economist Gregory Daco told AFP ahead of the Fed rate decision.

Powell"has not made up his mind yet, for one, as to whether a December rate cut will be necessary," added Daco, who nevertheless expects the Fed to make two quarter-point rate cuts this year.

Also simmering in the background are Trump's attempts to exert greater control over the management of the Federal Reserve, and Treasury Secretary Scott Bessent's widely-publicized plans to find a replacement for Powell, whose term as Fed chair ends in May.