UAE Central Bank cuts the base rate for the Overnight Deposit Facility (ODF) by 25 basis points, lowering it from 4.15 percent to 3.90 percent, effective October 30, 2025. This marks the second interest rate cut by the central bank in 2025, following a reduction from 4.40 percent to 4.15 percent in September after the US Federal Reserve lowered its policy rate.
Alignment with the US Federal Reserve
The latest decision was made in response to the US Federal Reserve’s announcement to decrease its Interest Rate on Reserve Balances (IORB) by 25 basis points on the same day. The UAE dirham’s peg to the US dollar requires the UAE to track the US Fed’s moves closely, supporting stable currency exchange and investor confidence.
Monetary Policy Signals
The base rate acts as the main indicator for UAE monetary policy and sets an effective floor for overnight market interest rates. The central bank’s move also maintains the borrowing rate for short-term liquidity from the CBUAE at 50 basis points above the base rate for all standing credit facilities. This structure ensures consistent costs for banks seeking short-term liquidity support.
Impact on Credit and Borrowers
The rate cut brings the key interest rate to its lowest level since 2022. Banks across the UAE are expected to respond with reduced rates on loans, mortgages, and other credit products, making borrowing cheaper for consumers, home buyers, and businesses. Sectors like property, retail, and tourism could gain as access to affordable financing encourages demand.
Recent Trends in UAE Rates
The base rate history reveals the UAE Central Bank previously held its rate steady at 4.40 percent through mid-2025, only making adjustments after the US Federal Reserve shifted policy twice in the second half of the year. UAE banks continue to benefit from favourable liquidity conditions and strong deposit growth, ensuring the rate cuts flow through without major disruptions to the banking system.
Why the UAE Follows the Fed
The UAE’s monetary policy remains closely aligned with the US Federal Reserve because of the fixed peg, established in 1997 at 1 USD = 3.6725 AED. This link ensures financial stability and supports international trade and investment.
