UAE Central Bank Cuts Interest Rate to 3.90% Following U.S. Fed Decision

Abu Dhabi, United Arab Emirates – October 30, 2025: The Central Bank of the UAE (CBUAE) has reduced its base rate for the Overnight Deposit Facility (ODF) by 25 basis points, lowering it from 4.15% to 3.90%, effective Thursday, October 30. The move came shortly after the U.S. Federal Reserve announced a similar quarter-point rate cut, reflecting the UAE’s monetary alignment with the U.S. dollar–pegged dirham.

Aligning With the Federal Reserve’s Latest Rate Decision

In its latest policy statement, the Federal Reserve lowered the target range for the federal funds rate to 3.75%–4.00%, citing mixed economic signals.

“Available indicators suggest that economic activity has been expanding at a moderate pace. Job gains have slowed this year, and the unemployment rate has edged up but remained low through August; more recent indicators are consistent with these developments. Inflation has moved up since earlier in the year and remains somewhat elevated,” the Fed said in its announcement.

This marks the second consecutive rate cut in recent months. In September, the Fed had lowered its benchmark rate to a 4.00%–4.25% range, the first reduction in nine months in response to moderating growth, slower hiring, and persistent inflation pressures.

UAE Follows With Coordinated Adjustment

Following the Fed’s move in September, the CBUAE had also trimmed its rate from 4.40% to 4.15%, a step that was mirrored again in October to maintain monetary policy stability.

The UAE’s interest rate decisions are closely tied to those of the Federal Reserve, as the dirham is pegged to the U.S. dollar, ensuring currency stability and consistency in financial policy across both economies.

Inflation and Economic Indicators Remain in Focus

The Fed’s latest decision was largely anticipated by traders after inflation data showed consumer prices rising slightly less than expected in September. The Consumer Price Index (CPI) increased 0.3% month-on-month, following a 0.4% rise in August, while annual inflation stood at 3.0% marginally below forecasts of 3.1%.

Despite the easing trend, core inflation which excludes food and energy, remains sticky, keeping policymakers cautious. Additionally, job growth has slowed, with payroll data from ADP indicating a near stagnation in private sector hiring amid the ongoing U.S. government shutdown that delayed official labor reports.

Markets Anticipate Further Rate Cuts

Investors now expect the Fed to continue its easing cycle in the coming months. According to market data, there is a 97.8% probability of another 25-basis-point cut in December, and a 50.8% likelihood of an additional cut in January 2026.

However, concerns linger that President Donald Trump’s new tariff policies could reignite inflationary pressures, potentially complicating the Fed’s strategy.

Fed Chair Jerome Powell has reiterated the central bank’s cautious approach, balancing the need to support growth with the risk of renewed price pressures. Meanwhile, President Trump has publicly pushed for deeper rate cuts, arguing that “inflation is no longer a concern” and that aggressive monetary easing is necessary to sustain economic momentum.

Analysts believe the UAE’s synchronized rate cut will help maintain liquidity conditions and credit affordability in the domestic market, supporting investment and consumer lending amid a global environment of slowing growth.

With inflation in the UAE remaining modest and fiscal conditions stable, the CBUAE’s measured approach is expected to provide ongoing support to banks, businesses, and homebuyers, while safeguarding the country’s strong monetary stability.