Dirham remains stable despite UAE central bank base rate cut

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Mikhail Vnuchkov

06.11.2025

Dirham remains stable despite UAE central bank base rate cut — How the dirham’s exchange rate reacted to the central bank’s actions

The Central Bank of the United Arab Emirates (CBUAE) announced a week ago that it had lowered the Base Rate applicable to the Overnight Deposit Facility (ODF) by 25 basis points — from 4.15% to 3.90%. Despite the monetary policy easing, the dirham’s exchange rate against the US dollar remained stable, reaffirming the strength of its currency peg and the effectiveness of the fixed exchange rate regime. The decision followed a similar move by the US Federal Reserve, which cut the Interest Rate on Reserve Balances (IORB) by 25 basis points.

The CBUAE also confirmed that the rate applicable to short-term liquidity borrowing from the central bank would remain 50 basis points above the Base Rate for all standing credit facilities. This means the regulator continues to align its monetary policy with that of the Federal Reserve, maintaining stability in interbank rates and investor confidence in the national currency.

In the week following the rate cut, the dirham’s exchange rate barely moved, trading in a narrow range between 3.6722 and 3.6730 AED per US dollar. Analysts note that the adjustment put no pressure on the currency market: the peg continues to ensure predictability, while liquidity in the banking sector has increased. Lower short-term deposit yields have encouraged investors to seek higher returns abroad and engage more actively in foreign exchange operations, briefly boosting activity on the forex market.

Trader reaction

The UAE Central Bank’s decision to cut the base rate triggered a measured yet overall positive response among forex traders. Most market participants interpreted the move as a sign of confidence in the country’s stable monetary policy. The rate reduction, combined with the dirham’s unchanged value, demonstrated that the Emirates’ financial system remains one of the most predictable in the region.

Against the backdrop of a looser monetary stance, trading activity has increased among both local and international traders dealing in USD- and gold-linked currency pairs. Market participants note that the dirham’s stability creates favorable trading conditions, as fluctuations remain within thousandths of a dirham — reinforcing the AED’s reputation as a safe-haven currency.

Experts add that under these conditions, interest in regulated trading platforms licensed by the Securities and Commodities Authority (SCA) and the Dubai Financial Services Authority (DFSA) is growing. Traders are increasingly seeking the best forex broker in UAE — firms that provide reliable order execution, local payment solutions, and support for trading AED-linked currency pairs.

In the long term, the stability of the AED and the transparency of the CBUAE’s policies are expected to attract more participants to the market, strengthening the UAE’s position as a regional hub for currency trading. For traders, this means the ability to operate in an environment of minimal exchange-rate risk and high financial security.

It is worth noting that the UAE has also launched a dirham-backed stablecoin to stimulate the growth of digital payments — another step toward integrating traditional and digital financial systems within the Emirates.

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