UAE: Loans, mortgages set to get cheaper as interest rates likely go down

The widely expected rate cuts by the US Federal Reserve will be the first time in three years

This week, borrowing costs in the UAE are anticipated to decrease as the US Federal Reserve and the Central Bank of the UAE (CBUAE) are expected to lower interest rates. This move will likely make personal, auto, and mortgage loans more affordable for consumers.

Since the UAE dirham is pegged to the US dollar, the UAE typically aligns its monetary policy with the Federal Reserve. Therefore, following the Fed’s meeting on September 18, the CBUAE is expected to mirror the US interest rate cut. This alignment helps maintain the stability of the currency peg and supports the UAE’s financial system. Lower borrowing costs will benefit businesses and individuals looking to access credit.

For the first time in three years, interest rates in the UAE are set to be reduced. The last time rates were cut was between mid-2019 and mid-2021, following the US Federal Reserve’s lead. During that period, central banks, including the Central Bank of the UAE (CBUAE), adopted a more accommodative monetary policy to cushion the economic impact of the COVID-19 pandemic. The reduction in rates helped stimulate economic activity by making borrowing more affordable for businesses and individuals during a challenging time for global economies.

The most recent change in the UAE’s monetary policy occurred on July 27, 2023, when the Central Bank of the UAE (CBUAE) raised interest rates by 25 basis points (bps), moving from 5.15% to 5.40%. This hike followed the US Federal Reserve’s decision to increase its Fed Fund rate by 25 bps the day before. Since the UAE dirham is pegged to the US dollar, the CBUAE closely aligns its interest rate decisions with those of the Federal Reserve.