UAE Central Bank Keeps Holding Prime Rate Unchanged: What It Means for Deposit Rates

Disclaimer: This blog post is for informational purposes only and does not constitute financial, investment, legal, or tax advice. Please consult a qualified professional before making any financial decisions.

Late on May 7, 2025, the Central Bank of the UAE (CBUAE) announced that it would keep its key Base Rate—the rate on its Overnight Deposit Facility (ODF)—unchanged at 4.40 percent. This move tracks the U.S. Federal Reserve’s decision earlier that day to hold its Interest Rate on Reserve Balances (IORB) steady, underscoring the UAE’s dollar‑pegged monetary framework and the close alignment of its policy with U.S. rates .

Why the Base Rate Matters

The Base Rate serves as the anchor for money‑market rates in the UAE. Banks use it to price:

• Short‑term funding (e.g. interbank loans, liquidity facilities)

• Loan products, such as corporate and retail financing, since they’re often priced at Base Rate plus a spread

• Deposit products, because deposit rates generally move in tandem with the Base Rate, albeit more sluggishly

By holding the Base Rate at 4.40 percent, the CBUAE signals its intent to maintain current monetary conditions—neither loosening policy to stimulate growth nor tightening to rein in inflation.

Impact on Deposit Rates

1. Savings Accounts Remain Low‑Yielding

Despite a Base Rate of 4.40 percent, most retail savings accounts in the UAE today offer near‑zero headline rates.

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2. Short‑Term Deposits vs. Base Rate

The Dirham Overnight Interest Average (DONIA)—the actual overnight interbank rate—has hovered around 12 basis points below the Base Rate, at roughly 4.28 percent. That gap reflects excess liquidity in the banking system and sets an effective floor for what institutions earn on overnight funds .

3. Time Deposits Offer Modest Pickup

Fixed‑term deposits (1 year) at major banks currently yield around 2 to 3 percent, well below the Base Rate but higher than instant‑access savings . Banks price these products to preserve their net interest margins, so depositors capture only a fraction of the Central Bank’s rate.

What May Savers Do?

• Shop Around for Special‑Offer Deposits

Some banks run promotional “booster” deposits paying up to 3.3 percent for limited tenors (e.g. 18 months) and minimum balances. These can narrow the gap to the Base Rate .

• Consider Money‑Market Funds

With DONIA near 4.28 percent, institutional and retail money‑market funds can deliver yields closer to the true overnight rate, often outperforming bank deposit products.

• Ladder Term Deposits

Building a “ladder” of staggered maturities may let you reinvest portions at potentially higher rates if the Base Rate moves in the future, while retaining some liquidity.

• Evaluate Alternative Income Instruments

High‑quality corporate bonds, sukuk, and other short‑duration fixed‑income instruments may offer yields above bank deposits, though they carry credit‑risk considerations.

Looking Ahead

With global economic uncertainty rising—particularly around inflation and employment—the U.S. Fed has signaled rate cuts may be delayed. The CBUAE, in turn, is likely to remain on hold until clearer signs emerge on price stability and growth .

• If inflation in the UAE stays contained, deposit rates may remain flat, preserving banks’ funding costs.

• If global rates fall, the Base Rate could eventually be trimmed, squeezing deposit yields further.

Bottom Line: The CBUAE’s decision to hold its Base Rate at 4.40 percent means deposit rates are unlikely to budge in the near term. To maximize returns on idle cash, UAE residents may explore higher‑yield term offers, money‑market vehicles, or alternative fixed‑income products—and be prepared to adjust their strategy if and when the Base Rate changes.