The UAE Central Bank reduced its benchmark interest rate by 25 basis points, after the US Federal Reserve’s move on Thursday to cut rates to boost business conditions amid easing inflationary pressures.
The banking regulator reduced its base rate for the overnight deposit facility to 4.65 per cent, effective from Friday. It maintained the interest rate applicable to borrowing short-term liquidity from the regulator at 50 basis points above the base rate for all standing credit facilities, the regulator said on Thursday.
This move aligns with the Fed’s decision on Thursday to lower the interest rate on reserve balances by 25 basis points.
The UAE Central Bank base rate, which is anchored to the Fed's interest on reserve balances, signals the general stance of the Central Bank's monetary policy and provides an effective interest rate floor for overnight money market rates in the UAE.
The UAE Central Bank typically aligns its interest rate decisions with those of the Fed because of the dirham's peg to the US dollar.
The Fed began its easing cycle with a 50 basis points cut in September on slowing inflation after keeping rates at a 22-year high for more than a year. The US entered a monetary easing cycle as the Fed aimed to prevent a recession and guide the world’s largest economy to a soft landing.
Gulf economies follow Fed rates
Most Gulf central banks align their policy rate changes with the Fed, as their currencies are pegged to the US dollar. Kuwait is the exception among the six-member economic GCC bloc, as its dinar is linked to a basket of currencies. Despite experiencing much lower inflation than other regions, these oil-rich economies kept pace with the Fed’s aggressive rate increase cycle.
The Saudi Central Bank, better known as Sama, on Thursday matched the Fed rate cut, reducing its repurchase agreement (repo) rate by 25 basis points to 5.25 per cent and its reverse repo rate by a similar margin to 4.75 per cent.
The Qatar Central Bank reduced the repo rate by a 30 basis points to 5.15 per cent. It also reduced its deposit rate to 4.9 per cent, and the lending rate to 5.4 per cent.
The Central Bank of Bahrain cut its key rate on overnight deposits by 25 basis points to 5.25 per cent, effective November 10.
The CBB said that the move is part of its measures to maintain monetary and financial stability in Bahrain, considering developments in global financial markets.
In the Gulf region, home to one third of the world’s proven oil reserves, government spending is primarily driven by oil prices rather than monetary policy.
Economies like Saudi Arabia, the world’s largest oil exporter, and the UAE, the Arab world’s second-largest economy, are investing tens of billions of dollars in projects aimed at economic diversification. These initiatives are often funded through a mix of government equity, commercial loans and project bonds. Lower financing costs are expected to bring some relief to these undertakings.
Fed maintains cautious approach
Fed’s decision comes against the backdrop of a massive underperformance from the labour market in October and a wider disinflationary trend – with the consumer price index falling to 2.4 per cent for September, industry experts said.
“The decision displays the confidence the Fed has that elevated levels of inflation have been successfully wrangled down from 2022 peaks,” said Neal Keane, head of global sales trading at Abu Dhabi-based international securities brokerage ADSS.
“The Fed will likely await the market’s responses and upcoming CPI and non-farm payrolls data in addition to any significant changes to new President Elect Trump’s policy.”
With markets reacting aggressively to Donald Trump’s election win with higher US yields, a stronger dollar and surging stocks, the Fed appears to be wary of inflationary threats and further rate cut decisions are to be taken on a meeting-by-meeting basis, Mr Keane added.
“The Fed may well hike again in December, but the pace of cuts is likely to slow into 2025, with a cut at every other meeting a possibility, based on today’s statement and comments from Fed chair during the press conference.”
Economic impact
The UAE has been focused on diversifying its economy from oil, with non-oil sector growth picking up significantly in recent quarters.
Its economy is expected to grow 4 per cent this year, up from the previous estimate of 3.9 per cent in June, the latest report by the UAE Central Bank showed.
The regulator has also revised its inflation forecast for the Emirates to 2.2 per cent, from 2.3 per cent for 2024. Inflation forecasts may be revised downwards if disinflationary trends in food, beverage and key non-tradable components continue to persist, it said in September.
In the first quarter, the country's economy expanded by 3.4 per cent, with real GDP reaching Dh430 billion ($117.08 billion), the Ministry of Economy said in September, quoting preliminary estimates from the Federal Competitiveness and Statistics Centre. The non-oil sector expanded by 4 per cent year on year during the quarter.
In the first half of this year, the country’s non-oil foreign trade hit a record Dh1.4 trillion, up 11.2 per cent on an annual basis amid a 25 per cent rise in non-oil exports on new comprehensive economic partnership agreements, the UAE Government Media Office said in August. The country, as part of its national economic goals, is pursuing the target of Dh4 trillion in foreign trade by 2031.
Kat Wightman's tips on how to create zones in large spaces
- Area carpets or rugs are the easiest way to segregate spaces while also unifying them.
- Lighting can help define areas. Try pendant lighting over dining tables, and side and floor lamps in living areas.
- Keep the colour palette the same in a room, but combine different tones and textures in different zone. A common accent colour dotted throughout the space brings it together.
- Don’t be afraid to use furniture to break up the space. For example, if you have a sofa placed in the middle of the room, a console unit behind it will give good punctuation.
- Use a considered collection of prints and artworks that work together to form a cohesive journey.
Ten tax points to be aware of in 2026
1. Domestic VAT refund amendments: request your refund within five years
If a business does not apply for the refund on time, they lose their credit.
2. E-invoicing in the UAE
Businesses should continue preparing for the implementation of e-invoicing in the UAE, with 2026 a preparation and transition period ahead of phased mandatory adoption.
3. More tax audits
Tax authorities are increasingly using data already available across multiple filings to identify audit risks.
4. More beneficial VAT and excise tax penalty regime
Tax disputes are expected to become more frequent and more structured, with clearer administrative objection and appeal processes. The UAE has adopted a new penalty regime for VAT and excise disputes, which now mirrors the penalty regime for corporate tax.
5. Greater emphasis on statutory audit
There is a greater need for the accuracy of financial statements. The International Financial Reporting Standards standards need to be strictly adhered to and, as a result, the quality of the audits will need to increase.
6. Further transfer pricing enforcement
Transfer pricing enforcement, which refers to the practice of establishing prices for internal transactions between related entities, is expected to broaden in scope. The UAE will shortly open the possibility to negotiate advance pricing agreements, or essentially rulings for transfer pricing purposes.
7. Limited time periods for audits
Recent amendments also introduce a default five-year limitation period for tax audits and assessments, subject to specific statutory exceptions. While the standard audit and assessment period is five years, this may be extended to up to 15 years in cases involving fraud or tax evasion.
8. Pillar 2 implementation
Many multinational groups will begin to feel the practical effect of the Domestic Minimum Top-Up Tax (DMTT), the UAE's implementation of the OECD’s global minimum tax under Pillar 2. While the rules apply for financial years starting on or after January 1, 2025, it is 2026 that marks the transition to an operational phase.
9. Reduced compliance obligations for imported goods and services
Businesses that apply the reverse-charge mechanism for VAT purposes in the UAE may benefit from reduced compliance obligations.
10. Substance and CbC reporting focus
Tax authorities are expected to continue strengthening the enforcement of economic substance and Country-by-Country (CbC) reporting frameworks. In the UAE, these regimes are increasingly being used as risk-assessment tools, providing tax authorities with a comprehensive view of multinational groups’ global footprints and enabling them to assess whether profits are aligned with real economic activity.
Contributed by Thomas Vanhee and Hend Rashwan, Aurifer
if you go
The flights
Fly direct to Kutaisi with Flydubai from Dh925 return, including taxes. The flight takes 3.5 hours. From there, Svaneti is a four-hour drive. The driving time from Tbilisi is eight hours.
The trip
The cost of the Svaneti trip is US$2,000 (Dh7,345) for 10 days, including food, guiding, accommodation and transfers from and to Tbilisi or Kutaisi. This summer the TCT is also offering a 5-day hike in Armenia for $1,200 (Dh4,407) per person. For further information, visit www.transcaucasiantrail.org/en/hike/
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KILLING OF QASSEM SULEIMANI
Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.
Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.
“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.
Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.
“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.
Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.
From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.
Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.
BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.
Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.
Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.
“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.
Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.
“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.
“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”
The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”
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Dubai Bling season three
Cast: Loujain Adada, Zeina Khoury, Farhana Bodi, Ebraheem Al Samadi, Mona Kattan, and couples Safa & Fahad Siddiqui and DJ Bliss & Danya Mohammed
Rating: 1/5
