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The Central Bank of the UAE followed in the US Federal Reserve’s footsteps to keep interest rates steady yesterday, maintaining its overnight deposit rate at 5.40% and the overnight lending rate at 5.90%, it said in a statement late yesterday.
REMEMBER- The UAE’s overnight deposit rate, or the base rate on overnight deposit facilities, is anchored to the US Federal Reserve’s interest rates as the AED is pegged to the USD.
Not a surprise: The Fed’s decision to keep rates unchanged at 5.25-5.5% is in line with expectations, following what it cited as solid expansion of economic activity, elevated but easing inflation, strong job gains, and low unemployment, it said in a press release.
Sit tight for three rate cuts this year: Policymakers signaled that the central bank is still on track for rate cuts this year, with a three-quarters of a percentage point cut expected before the end of 2024.
But less rate cuts next year: Officials have dialed down expectations for rate cuts next year from four down to three, in what one analyst described as a “bullish-dovish” approach from the Fed.
Bullish on growth: The Fed raised its forecast for US economic growth this year, saying that it expects GDP to expand by 2.1% this year, compared to previous forecasts of 1.4%. “The economy is performing well,” Fed chair Jerome Powell said during a presser (watch, runtime: 1:11:22) after the Fed wrapped up its two-day meeting. That said, he added that there will be challenges before the economy moves into a soft landing, with core inflation projections currently sat at 2.6% in 2024, above the Fed’s 2% target.
Market reax: The Fed’s meeting sent investors to market, leading to a spike in the S&P 500, which closed at a record 5,225 on Wednesday. Tech-heavy Nasdaq 100 rose 1.2% while gold rose 1.6% to as much as USD 2,200 per ounce for the first time. Two-year Treasury yields fell 0.09 percentage points to 4.60%.
