The Central Bank of the UAE (CBUAE) raised its Base Rate applicable to the Overnight Deposit Facility by 25 basis points to 3.90%, effective from 17 September 2026, following an identical move by the US Federal Reserve the day before.
The UAE Central Bank Base Rate increase brings the rate up from 3.65%. The CBUAE also confirmed it will maintain the interest rate on short-term liquidity borrowed through all standing credit facilities at 50 basis points above the Base Rate.
Why the UAE Central Bank Base Rate moved in step with the Fed
The CBUAE’s Base Rate is anchored to the US Federal Reserve’s Interest Rate on Reserve Balances (IORB) rather than directly to the federal funds rate target. It signals the general stance of monetary policy and provides an effective floor for overnight money-market rates in the UAE.
The dirham’s peg to the dollar drives the alignment. The CBUAE’s domestic market operations intervene at USD/AED 3.672 when buying dollars and USD/AED 3.673 when selling, preventing net fund flows from shifting the parity.
The Federal Reserve raised the target range for the federal funds rate by 25 basis points to 3¾–4% on 16 September 2026, citing elevated inflation and the need to return to its 2% goal on a timelier basis.
Vijay Valecha, Chief Investment Officer at Century Financial, said the Fed decision was largely expected after a pause of more than three years. ‘The dirham is pegged to the dollar, so the UAE Central Bank typically moves its Base Rate in step with the Fed,’ he said. The Base Rate ‘anchors overnight money-market rates, and EIBOR, the interbank benchmark for most local borrowing, moves closely with it.’
Madhur Kakkar, founder and CEO of Elevate Financial Services, had forecast the move ahead of the Fed decision. ‘Given the dirham’s peg to the US dollar, the Central Bank of the UAE is likely to closely follow the move,’ he said.
What the UAE Central Bank Base Rate rise means for mortgages and deposits
Valecha said the increase is likely to feed through to variable-rate mortgages and corporate borrowing costs. ‘When it rises, lending rates across the system rise too,’ he said, adding that business borrowing costs could increase for companies already facing higher energy and shipping costs.
Kakkar said the impact on consumers would be gradual. ‘Depositors are likely to see improved savings and term deposit returns sooner than borrowers experience higher repayment costs,’ he said.
On mortgages, Kakkar estimated that a full 25-basis-point increase on an outstanding Dh1.5 million mortgage with 25 years remaining would add about Dh210 to monthly repayments, or roughly Dh2,500 annually.
The CBUAE’s June 2026 Quarterly Economic Review showed the Dirham Overnight Index Average (DONIA) averaged 5 basis points above the Base Rate during Q1 2026 and through April 2026. Three-month EIBOR, the key benchmark for floating-rate loans, declined in quarterly average terms over that same period, though the September rate move is expected to exert upward pressure on it.
Gulf News also confirmed the new rate is effective from 17 September 2026.
Markets will now focus on the Federal Reserve’s next policy decision and whether policymakers hold a higher-for-longer stance into 2027.
