UAE consumers are expected to experience a decline in borrowing costs in 2024 as interest rates are anticipated to decrease by 100 basis points. Analysts predict that interest rates on personal loans, mortgages, car financing, and credit cards will see a reduction as both the US Federal Reserve and the Central Bank of the UAE (CBUAE) are likely to cut rates amid a decrease in inflation in the United States.
The UAE, having its currency pegged to the US dollar, often aligns its monetary policy with that of the Federal Reserve. Therefore, any rate cuts by the Fed are expected to be mirrored by the CBUAE. The recent decision by the Fed to maintain interest rates at a 22-year peak and the CBUAE’s alignment with this decision affirm the current stance.
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Analysts suggest a potential 50-100 basis points rate cut in 2024, with the Fed considering rate cuts to address inflation concerns. The anticipated rate cuts are seen as an effort to stabilize inflation and support economic growth.
Steven Rees, Head of Investments for the Middle East and North Africa at JP Morgan Private Bank, noted that the Fed is considering more rate cuts than initially expected, with 75 basis points in total anticipated for next year. This is supported by an optimistic view of the economy avoiding a recession, and the belief that inflation pressures are easing.
Market analysts expect the Fed to keep interest rates unchanged until the first half of 2024, followed by a potential rate cut of 50 to 100 basis points. The decision is likely to be influenced by readings on core inflation, shaping the future policy decisions of the Fed.
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Vijay Valecha, Chief Investment Officer at Century Financial, highlighted that the decline in interest rates would directly impact UAE consumers, resulting in lower borrowing costs for personal loans, mortgages, and credit cards. The impact varies depending on whether borrowing is tied to short-term or long-term rates, with short-term loans experiencing a faster rate decline.
The potential reduction in mortgage rates, linked to the Emirates Interbank Offered Rate (Eibor) index, is expected to lead to reduced monthly payments, increased purchasing power, and improved refinancing opportunities for existing mortgages. The overall effect is anticipated to enhance housing demand and affordability for consumers in the UAE.
