UAE borrowers relieved as interest rate hikes nearly come to an end.
02 August 2023, 12:00 AM
31 August 2023, 12:00 AM
UAE borrowers heaved a sigh of relief as the interest rates hikes nearly came to an end.
The US Federal Reserve increased rates by 25 bps to 5.25-5.5 per cent on Wednesday night, reaching the highest level in 22 years. Due to the dirham’s peg to the dollar, the UAE Central Bank followed the Fed and raised base rates by 25 bps.
Fed officials and economists estimated that there would be only one more rate hike this year, henceforth, rates are likely to stay at the current level or might go down as inflation has been successfully reined in.
Muhammad Waqas, a Dubai-based expat, took a personal loan to start a small business with interest rates based on the floating rates.
“It’s good news that interest rate hikes are coming to an end because most of the profit that I was making we going to paying interest rates,” said Waqas.
Roberto D’Ambrosio, CEO, Axiory Global, said should central banks stop raising interest rates, it will definitely benefit existing borrowers in variable interest rate loans which will see their payments stop raising.
“New borrowers might also benefit from the variable interest rates if they accurately determine the sustainability of the payment instalments at the present level, and then enjoy extra resources becoming available as the interest rates will revert their path,” he said.
He added that the economic indicators seem to suggest that central banks would stop hiking rates.
Denys Peleshokm head of Asia, CPT Markets, said while the Federal Reserve left the door open for more interest rate hikes in the future, it is likely that it does not go any higher considering the path of inflation.
“We could see an end to the increase in financing costs and a more stable interest rate outlook for loans in the UAE. Over the longer term, if economic conditions permit it and if inflation keeps coming down, the Federal Reserve could start reducing rates resulting, in the process, in lower interest rates for loans in the UAE,” he said.