Wednesday, 01 December 2021 07:34 GMT

Pay more on card payments in UAE as interest rates rise


(MENAFN- Khaleej Times) The Central Bank of the UAE on Thursday said it will raise interest rates by 25 basis points in line with the US Federal Reserve board's decision to increase the policy rate third time this year.

The increase in interest rate will be applied to the issuance of its certificates of deposits with effect fromThursdaydue to hike in interest rates on US dollar.

In a statement, the central said repo rate applicable to borrowing short-term liquidity from the central bank against certificates of deposits has also been increased by 25 basis points to 1.75 per cent.

Certificates of deposit, which Central Bank of the UAE issues to banks operating in the country, are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system.

Jitendra Gianchandani, chairman and managing partner at Jitendra Consulting Group, said it's simple rule of statistics, correlation and dependence, as th UAE dirham is pegged to the US dollar.

"Any change upwards in the interest by the US, it will also swing the interest rates upwards in the UAE, making all borrowings be it education, housing, car loans or business loans more expensive that will affect the consumers and economy as well," Gianchandani told Khaleej Times.

The Federal Reserveon Wednesdaylifted its benchmark short-term rate by a quarter percentage point to a range of 1.25 per cent to 1.5 per cent as the policymakers projected a short-term jump in US economic growth from the Trump administration's proposed tax cuts.

It is expected that monthly payments on credit cards, adjustable-rate mortgages and home equity lines may go upward and sustains the trend as the US Federal Reserve maintained its forecast for three hikes next year. The Fed has raised its key rates five times since the recovery from the Great Recession began in 2009.

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