Borrowing in the UAE is set to become more affordable as interest rates decline. Following the US Federal Reserve’s 25-basis-point cut on September 18, the Central Bank of the UAE has lowered its benchmark rate, signaling cheaper borrowing costs for residents.
This development presents UAE residents with key choices: spend, save, or invest differently. Here’s what it could mean for you:
1. Cheaper Borrowing
Mortgages, personal loans, and variable-rate credit cards are expected to see lower monthly payments. Bill Banfield, Chief Business Officer at Rocket Mortgage, said, “Consumers could benefit from lower short-term rates, making adjustable-rate mortgages – which closely follow the Fed’s moves – more attractive.”
Lower debt payments free up disposable income and may increase demand in the property market, particularly in prime locations.
2. Savings May Yield Less
Traditional savings accounts and fixed deposits could generate lower returns. Vijay Valecha, Chief Investment Officer at Century Financial, notes, “Both businesses and individuals would benefit from more attractive loan rates, which could ease debt servicing burdens and improve asset quality.”
Residents may need to reconsider their savings strategies or explore alternative investment options, including stocks, real estate, or gold.
3. More Spending Power
Cheaper loans and lower returns on savings may encourage households to make bigger purchases, such as homes, cars, or travel. Lower debt servicing costs can free up disposable income, giving families more flexibility to spend or invest.
4. Investment Opportunities Rise
Developers can access cheaper funding, which could accelerate new project launches. Investors may also find better opportunities in real estate, equities, and growth stocks. Josh Gilbert, Market Analyst at eToro, explains, “Historically, rate cuts outside of recessionary periods have served as a positive catalyst for equities.”
Broader Impact on UAE Businesses
Easier access to credit is expected to benefit non-oil sectors, supporting the expansion of small and medium enterprises, infrastructure projects, and new investments. While banks may face slightly lower profit margins due to reduced rates, this can often be offset by higher lending volumes and improved asset quality.
Additionally, a softer US dollar could make the UAE more attractive for international tourists, though businesses that rely heavily on imports may face higher costs.
The Bigger Picture
With inflation in the UAE remaining low, the central bank has room to support growth without overheating the economy. Residents now face the choice of leveraging cheaper borrowing to spend or adjusting their savings strategy to maintain returns.
Bottom Line:
Lower borrowing costs, reduced savings returns, and new investment opportunities are set to shape financial decisions in 2025. Understanding these changes can help residents make smarter choices with their money.
