UAE residents with home, car or personal loans should brace for borrowing costs to stay high, with the US Federal Reserve expected to raise interest rates again later this year.
The Fed lifted rates by 25 basis points to a target range of 3.75 per cent to 4.0 per cent last Wednesday, after more than three years. Markets widely expected the move, with expectations running above 90 per cent going into the meeting. The Central Bank of the UAE also raised rates on Wednesday, as the UAE dirham is pegged to the US dollar.
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“What matters now is less the hike itself and more the message that accompanied it. Policymakers reiterated that inflation remains elevated, and their updated projections suggest rates could remain restrictive for longer, with the possibility of another increase before year-end,” said Hamza Dweik, head of trading for Mena at Saxo Bank.
What it means for your loans
Dweik said financing costs are likely to remain elevated because of the peg, and “borrowing costs for mortgages, personal loans and business lending are unlikely to ease anytime soon.”
He expects borrowing costs across the UAE to stay high well into 2027.
Lale Akoner, global market strategist at eToro, said consumers will feel the impact through more expensive credit cards and auto loans.
“It may take time to show up in the wider economy, but higher borrowing costs should eventually take some heat out of spending and hiring.”
More hikes possible
The Fed’s projections point to further tightening.
“16 of 18 officials expect at least one more increase this year, and four see two more,” Akoner said.
Aliasgar Tambawala, co-CIO of Klay Group, said the median projection indicates one more hike this year, with two more not ruled out if inflation stays sticky. “The Fed does not appear inclined to pause until there is clearer and more sustained evidence of inflation moderating towards its target,” he said.
US inflation is running at around 3.4 per cent, well above the Fed’s 2 per cent target.
UAE economy holding up
Dweik said the UAE economy remains relatively well positioned to absorb tighter monetary conditions.”
He added that higher rates may slow credit demand, particularly among SMEs and highly leveraged borrowers, but are unlikely to materially derail growth.
According to the Central Bank of the UAE, gross credit grew by Dh41.2 billion, or 1.5 per cent, in July 2026 to reach Dh2.798 trillion. Domestic credit rose 1.4 per cent to Dh2.206 trillion, while foreign credit increased 1.8 per cent to Dh592.9 billion.
Advantage for savers
Savers stand to benefit as, according to Dweik, higher benchmark rates support stronger returns on deposits and cash holdings, an increasingly attractive option after years of near-zero rates.
“For UAE households and businesses, the current environment continues to reward liquidity and disciplined borrowing, while making debt-financed expansion projects more expensive than they were just a few years ago.”
Source: Khaleej Times