The UAE Central Bank has decided to keep its base rate applicable to the Overnight Deposit Facility (ODF) unchanged at 5.40 percent.

This move comes after the US Federal Reserve opted to leave interest rates unchanged in its latest monetary policy decision.

The UAE’s currency is pegged to the US dollar at a fixed exchange rate of AED 3.67 per USD. Consequently, the CBUAE typically aligns its interest rate decisions with those of the US Fed to maintain the currency peg’s stability.

“Inflation is still too high. Further progress in bringing it down is not assured and the path forward is uncertain,” said Fed Chair Jerome Powell during the announcement.

He acknowledged that after a promising start to 2024, with three consecutive months of faster-than-expected price increases, it “will take longer than previously expected” for policymakers to gain confidence that inflation will resume its downward trajectory toward the 2 percent target.

While the steady progress in lowering inflation has stalled, Powell emphasised that rate increases remain unlikely for now. However, he set the stage for a potentially extended hold of the benchmark policy rate in the 5.25-5.50 percent range, which has been in place since July, as reported by Reuters.

The Fed’s preferred inflation measure, the personal consumption expenditures price index, accelerated to a 2.7 percent annual rate in March. Powell admitted that his confidence in inflation falling over the course of the year is lower than before.

“If we did have a path where inflation proves more persistent than expected, and where the labor market remains strong but inflation is moving sideways and we’re not gaining greater confidence, well, that would be a case in which it could be appropriate to hold off on rate cuts. There are paths to not cutting and there are paths to cutting. It’s really going to depend on the data,” he said.