US Fed leaves key interest rates steady, expects inflation to rise

The US central bank held interest rates steady and projected higher inflation, steady unemployment and a single reduction in borrowing costs this year, a path that Federal Reserve Chair Jerome Powell said was subject to unusually high uncertainty as policymakers take stock of the impact of the US and Israeli war with Iran.

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The Central Bank of the UAE (CBUAE) has decided to maintain the Base Rate applicable to the Overnight Deposit Facility (ODF) at 3.65%.

This decision was taken following the US Federal Reserve's announcement to keep the Interest Rate on Reserve Balances (IORB) unchanged.

The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE 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 IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.

"In the near term, higher energy prices will push up overall inflation, but it is too soon to know the scope and duration of the potential effects on the economy," Powell said in a press conference following the Fed's III decision to maintain its benchmark overnight interest rate in the 3.50%-3.75% range. "The thing I really want to emphasize is that nobody knows: the economic effects could be bigger, they could be smaller; they could be much smaller or much bigger; we just don’t know." New projections showed Fed policymakers as a group expect to cut the policy rate by a quarter of a percentage point by the end of this year, a view that on the surface was unchanged from their last set of projections in December.