The Central Bank of the UAE has taken a decision to up the Base Rate applicable to the Overnight Deposit Facility (ODF) by 50 basis points, as of Thursday, May 5, 2022.

The CBUAE also took the step of maintaining the rate applicable to borrowing short-term liquidity from the bank through all standing credit facilities at 50 basis points above the Base Rate.

The Base Rate, which is helmed to the US Federal Reserve’s IORB, hints at the general stance of the CBUAE’s monetary policy. The overnight money market rates is also to take part in an effective interest rate floor. 

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This decision was carried forward after the US Federal Reserve Board’s declared Wednesday an increase in the Interest on Reserve Balances (IORB) by half a percentage point, which is believed to be the biggest jump in 22 years. It would start cutting its bond holdings next month as the next step in the fight for lower inflation.

The increase in the Fed’s key rate upped to a range of 0.75 per cent to 1 percent, the highest point since the pandemic struck two years ago. The COVID-19 pandemic has been harsh on the market.

The Fed also made details available for the beginning of reducing its huge $9 trillion balance sheet, which hold mostly Treasury and mortgage bonds.

It is believed that these took spot at more than doubled after the pandemic recession hit. The Fed bought trillions in bonds to try to hold down long-term borrowing rates.

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A decline in the amount for the Fed’s holdings is expected to have the effect of further raising loan costs throughout the economy.

All Gulf countries have their currencies hit to the US dollar, except Kuwait, which hold the Kuwaiti dinar to a bag of currencies that includes the dollar.

The central banks of Saudi Arabia, Qatar and Bahrain increased their key rates by 50 bps. The Central Bank of Kuwait added that it increased its discount rate by 25 basis points (bps) to 2%, in a move less hawkish than the Fed’s.

The Central Bank of Kuwait said it increased its discount rate by 25 basis points (bps) to 2 per cent, in a step that hit less hawkish than the Fed’s.

The Saudi Central Bank (SAMA) raised its repo rate and reverse repo rates by 50 bps each to 1.75 per cent and 1.25 per cent, respectively.

As of Thursday, the Central Bank of Qatar said it would raise, its deposit and repo rates by 50 bps to 1.5 per cent and 1.75 per cent, respectively. The lending rate would take a climb from 25bps to 2.75.

The central bank of Bahrain also hyped up their key rates by 50 bps. The Central Bank of Bahrain said it increased key policy rate, on its one-week deposit facility, by 50 bps to 1.75 per cent, in lockstep with the Fed’s hike.