Consumers in the UAE can expect relief as lending rates are likely to decrease in the near future. This possibility arises as the US Federal Reserve maintained its key benchmark rate, leading to expectations of lower interest rates. The UAE dirham’s peg to the US dollar has kept the Emirates Interbank offered rates unchanged at 5.40 per cent. The Central Bank of UAE also decided to keep the interest rate for short-term borrowing from the CBUAE steady. The base rate, linked to the US Federal Reserve’s interest on reserve balances, sets the tone for monetary policy in the UAE.
Market experts anticipate a potential interest rate cut by the Fed in September, which could bring the EIBOR rate close to five per cent over the next few months. This anticipated decrease in interest rates is seen as a positive for consumers, as it could prevent further increases in lending rates for auto loans, credit cards, and personal loans. Additionally, it may enable local state-owned enterprises and infrastructure players to utilize credit resources more effectively. Lower debt costs could lead to increased credit uptake and spending, especially in sectors like construction, housing, infrastructure, and tourism.
The UAE currently has a robust construction project pipeline of nearly $500 billion over the next five years. This includes projects in core infrastructure areas as well as housing, road construction, and other critical sectors for economic diversification. The lower cost of debt resulting from potential interest rate cuts could provide a significant boost to credit activity and overall economic growth. This forward-looking approach by the Fed reflects an acknowledgment of the need for flexibility in monetary policy to stimulate economic growth and manage inflation effectively.
The Fed’s commitment to aligning its actions with market expectations and maintaining interest rates without deviation from prevailing trends is seen as a strategy to instill confidence in global investors. The upcoming FOMC meeting in September is highly anticipated, with markets expecting a 25-basis points rate cut by the US Fed. Should the Fed implement this rate cut, it is likely to have a positive impact on the UAE market, providing relief for consumers and enabling businesses to make use of credit resources more efficiently. The potential decrease in interest rates aligns with the goal of supporting economic growth and ensuring stability in financial markets.
