In a significant monetary policy move, the UAE Central Bank announced a reduction in its key benchmark rate to 3.90%, effective October 30. This decision, which lowers the base rate on overnight deposit facilities by 25 basis points from 4.15%, comes in direct response to the US Federal Reserve’s decision to cut interest rates by 25 basis points earlier on Wednesday. This marks the second rate cut by the Fed this year. The UAE’s monetary policy is closely tied to the US due to the dirham’s peg to the US dollar, necessitating alignment with Federal Reserve actions. Additionally, the UAE Central Bank has opted to maintain the interest rate for short-term liquidity borrowing 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 Interest Rate on Reserve Balances, serves as a critical indicator of the UAE’s monetary policy stance and sets a floor for overnight money market rates. The US rate cut aims to stimulate the economy amid ongoing challenges, including the lingering effects of former President Donald Trump’s tariffs and the prolonged government shutdown, which has disrupted the publication of official economic data. Fed officials have expressed concerns about a cooling labor market, prompting a focus on bolstering employment despite inflation remaining above target. While financial markets had anticipated the October and December rate cuts, Fed Chair Jerome Powell has indicated that the Federal Open Market Committee (FOMC) remains open to future decisions. Analysts, including EY chief economist Gregory Daco, suggest that Powell has not yet committed to a December rate cut, though two quarter-point reductions this year are widely expected. Amid these developments, Trump’s efforts to exert greater control over the Federal Reserve and plans to replace Powell add further complexity to the economic landscape.