Interest rates on various borrowing options, including personal loans, mortgages, car financing, and credit cards, are poised to decrease in 2024 in the UAE. This anticipated reduction, estimated at 100 basis points, aligns with the monetary policy changes by the US Federal Reserve and the Central Bank of the UAE (CBUAE), in response to a decline in US inflation.
The UAE’s monetary policy, closely linked to the US due to the pegging of its currency to the US dollar, often mirrors the Federal Reserve’s decisions. The Fed recently maintained its interest rates at a 22-year peak, a stance also adopted by the CBUAE. However, experts project a shift next year, with the Fed and consequently the CBUAE expected to lower rates.
Steven Rees from JP Morgan Private Bank and Rania Gule from XS.com suggest that the US might initiate rate cuts in the latter half of 2024, influenced by improving inflation trends. These cuts, potentially ranging from 50 to 100 basis points, are anticipated to steer the UAE’s policy direction similarly.
Vijay Valecha, Chief Investment Officer at Century Financial, highlights the direct impact of these changes on UAE consumers. Lower interest rates would mean reduced borrowing costs, benefiting those with variable-rate loans through refinancing opportunities. He further elaborates that the effect on consumers varies depending on the type of borrowing – short-term loans like credit cards and auto loans are more likely to experience quicker rate declines compared to long-term loans.
In the mortgage sector, the UAE rates, linked to the Emirates Interbank Offered Rate (Eibor), are influenced by the US Fed funds target rate. Lower mortgage rates are expected to lead to reduced monthly payments, increased purchasing power, and enhanced opportunities for refinancing existing mortgages.