UAE Central Bank holds its base rate at 3.9%

The Central Bank of the UAE (CBUAE) announced late on Wednesday, 28 October, that its base rate stays at 3.9%. The rate it charges banks for short-term borrowing through its standing credit facilities stays 50 basis points above the base rate — 4.4%.

The decision followed the US Federal Reserve, which left its own rates unchanged the same day despite persistently high inflation and a spike in energy prices in the United States.

Why Dubai follows Washington

The UAE dirham is pegged to the US dollar. To keep the peg stable, the Central Bank anchors its base rate to the Fed's interest rate on reserve balances (IORB): when the Fed moves, the UAE usually moves by the same amount on the same day. The base rate signals the general direction of monetary policy and sets a floor for overnight interest rates between banks in the UAE.

In practice this means UAE borrowing costs are set by the US economy, not by the Dubai property market. A hot or cool quarter in Dubai does not change the base rate; a Fed decision does.

How we got here

The last change came six weeks earlier. On 16 September the Central Bank raised the base rate by 25 basis points, from 3.65% to 3.9%, effective from 17 September, after the Fed raised its rate on reserve balances by the same amount. October's decision leaves that rise in place.

What it means for mortgages

The base rate is not the rate a homebuyer pays. UAE banks price most mortgages off the interbank rate, EIBOR, plus their own margin, and many offer a fixed rate for the first years of the loan before it moves to a variable rate. But EIBOR tends to follow the base rate, so a held base rate means the cost of new variable-rate loans is not falling, and fixed-rate offers are made with today's rates in mind.

To show the scale, take a Dh1.5 million loan over 25 years. These rates are examples, not bank quotes:

A quarter of a point — the size of September's rise — adds about Dh214 a month on this loan, or about Dh2,570 a year. It does not decide whether a family can buy, but it can decide which home fits the budget a bank approves.

The same arithmetic works at other sizes: on a Dh1 million loan over 25 years, a quarter point is about Dh143 a month; on Dh3 million, about Dh429.

Questions to ask a lender

A rate on its own says little. Before a client compares offers, these are the questions that decide what they will actually pay:

1. How long is the fixed period, and what is the rate after it? Most offers say "EIBOR plus a margin" for the years after the fixed period — the margin matters as much as the opening rate.
2. Which EIBOR? One-month and three-month rates move differently; the loan agreement names one.
3. What are the fees? Arrangement, valuation and early settlement fees change the real cost, especially for an investor who may sell within a few years.
4. Is the approval for this property or for this budget? A pre-approval sets a budget; the final approval depends on the valuation of the home the client chooses.

Who is affected and who is not

• Cash buyers — not at all: the rate decision changes nothing for a purchase made without a loan.
• Buyers who need a mortgage — approval amounts are calculated at current rates, so a steady rate keeps budgets where they were in September.
• Owners on variable rates — their payments follow EIBOR; a hold means no relief this month.
• Owners whose fixed period is ending — they move to the variable rate at today's level, which is higher than it was before September.
• Off-plan buyers on developer payment plans — instalments to the developer are not linked to the base rate; the rate matters again at handover if they plan to finance the balance.

What to watch

The next move depends on the Fed. Its decision of 28 October came with high inflation and rising energy prices in the US, which argue against a quick cut. Until the Fed changes course, the UAE base rate is likely to stay at 3.9%, and the Central Bank will announce any change the same day the Fed does.