UAE Consumers To See Stable Borrowing Costs As Rates Continue At Current Levels

UAE borrowers are expected to enjoy stable mortgage rates for a longer time, after the Central Bank of the UAE on Wednesday maintained its benchmark rate.

In a statement, the UAE Central Bank said it will maintain the base rate applicable to the Overnight Deposit Facility (ODF) at 4.40 per cent.

This decision was taken following the US Federal Reserve's announcement to keep the interest rate on reserve balances (IORB) unchanged.

The CBUAE has also decided to maintain the interest rate applicable to borrowing short-term liquidity from the CBUAE at 50 basis points above the base rate for all standing credit facilities.

The base rate, which is anchored to the US Federal Reserve's IORB, signals the general stance of monetary policy and provides an effective floor for overnight money market interest rates in the UAE.

The US Federal Reserve's interest rate decisions directly influence the UAE economy due to the UAE dirham's peg to the US dollar. The Central Bank of the UAE (CBUAE) aligns its monetary policy with the Fed to maintain this peg. Fed Chair Jerome Powell's press conference on Wednesday revealed no clear indications as to the directions of the rates, signalling a continuation of the current approach.

This synchronisation ensures currency stability but affects borrowing and investment, Vijay Valecha, Chief Investment Officer, Century Financial, told Khaleej Times.“Personal loan rates are unlikely to see significant changes in the near term, offering predictability for borrowers,” he added.

However, UAE savers can continue to capitalise on high fixed deposit (FD) rates offered by banks, supported by robust liquidity in the financial sector.“The UAE's economy is well-positioned to withstand high interest rates, thanks to its strong non-oil sector growth,” Valecha said

On the Fed holding rates, analysts say the US central bank statement on Wednesday indicated a slightly bearish outlook for the world's largest economy.“The statement featured a modest downgrade in the Fed's economic assessment. In June, they wrote that economic activity had 'continued to expand at a solid pace' while on Wednesday, the tone was more cautious, stating that 'economic activity moderated in the first half of the year'. The Committee continues to characterise inflation as 'somewhat elevated', but acknowledged persistent upside risks, particularly from tariffs and fiscal dynamics,” said Dan Siluk, head of global short duration & liquidity and portfolio manager at Janus Henderson Investors.

The Federal Reserve has faced consistent pressure from President Donald Trump to lower interest rates. He argues that a significant rate cut is warranted due to various factors, including the rising cost of servicing government debt as bond issuance increases.

Despite previous reductions, Fed rates remain relatively high compared to recent years. In 2024, interest payments on government debt reached $1.1 trillion-more than double the pre-pandemic level-highlighting the growing fiscal burden, Reuters data shows.

“Markets are likely to interpret Wednesday's outcome as a continuation of the Fed's“wait-and-see” strategy, with a dovish lean emerging through the dissents and softer language. The September meeting will be a live one,” Siluk added.

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