The US Federal Reserve and Central Bank of the UAE (CBUAE) are expected to cut the cost of borrowing this week. The fall in interest rates will now make personal, auto, and mortgage loans more attractive to UAE residents. Given that the dirham is pegged to the dollar, the UAE is expected to align its interest rate cut with the US following the meeting on September 18, 2024.
2024 marks the first major rate cut in the UAE over the last three years. Before this, the UAE cut interest rates between the middle of 2019 and the middle of 2021 following the policy engaged by the US Federal Reserve. After 2021, the central bank chose to adopt a “softer monetary policy to alleviate the impact of the coronavirus on the economy.” In 2023, the CBUAE made a minor adjustment to interest rates, raising it by 25 bps from 5.15% to 5.40%, following the 25 bps increase in the US Fed Fund rate from a day prior.
Financial advisers and analysts across the UAE expect a 50 basis point rate reduction on Wednesday as markets anticipate Fed rate cuts. Vijay Valecha, chief investment officer at Century Financial, told Khaleej Times, “The UAE is most likely going to follow in the footsteps of the Fed, which is expected to cut rates by 50 bps with a 67% probability as per the CME FedWatch tool. The odds of 25 bps have fallen to 33% compared to 66% from a week ago.”
With lower rates, borrowing will become a booming practice in the UAE and the world at large. UAE borrowers will soon enjoy competitive rates when exploring new personal and mortgage loans. Additionally, existing borrowers in the UAE can benefit from falling rates to achieve lower monthly payments. Several analysts have also pointed toward accelerated demand in the market, which will drive up consumption in the country. With lower rates, more residents become eligible for personal and mortgage loans, thereby boosting spending across the UAE.
