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Anticipated Interest Rate Decrease in UAE Set to Impact Borrowing Costs

Interest rates are expected to fall by 100 basis points in 2024, affecting borrowing costs for UAE households.

Economists forecast a reduction of 100 basis points in interest rates for 2024, affecting borrowing expenses for UAE consumers across various financial products like personal loans, mortgages, car financing, and credit cards. 

The expected rate cut is attributed to the anticipated actions of the US Federal Reserve and the Central Bank of the UAE.

Correlation between UAE and US Monetary Policies:

Given the UAE’s currency pegged to the US dollar, the Central Bank generally aligns its monetary policy with the Fed’s decisions. 

The Federal Reserve’s anticipated rate cuts in 2024 will likely be mirrored by the UAE’s Central Bank, impacting local interest rates.

The Fed maintained its interest rates at 5.25 to 5.50 percent, and similarly, the UAE Central Bank retained its Overnight Deposit Facility Base Rate at 5.40 percent, consistent with the Fed’s stance. 

This alignment in monetary policy decisions indicates the potential for a synchronized rate adjustment in the future.

Expert Predictions:

Economic experts project a 50 to 100 basis points rate cut in 2024, backed by expectations of stable inflation and a resilient economy in the US. 

The anticipated rate adjustments are believed to be contingent on core inflation indicators influencing the Fed’s policy decisions.

Vijay Valecha, Century Financial’s Chief Investment Officer, notes the direct impact on consumers, particularly in lower borrowing costs for personal loans, mortgages, and credit cards following rate cuts. Existing borrowers with variable rates can also benefit from refinancing their loans at reduced interest rates.

Differential Impact on Various Financial Products:

The rate cuts are expected to affect short-term loans such as credit cards and auto loans more rapidly than long-term loans. 

Valecha highlights the potential impact on savings, deposits, and money market accounts, where lower interest rates could lead to reduced returns.

Mortgage rates in the UAE, linked to the Eibor index, might experience a decline, resulting in reduced monthly payments, increased purchasing power, and improved refinancing opportunities. Lower mortgage rates could enhance housing affordability and spur housing demand.

Strategic Financial Planning:

Valecha recommends strategic financial planning for investors to capitalize on higher rates by elongating the time horizon for parked funds in savings and deposit instruments before anticipated rate adjustments by banks.

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