The Central Bank of the UAE’s (CBUAE) latest interest rate increase is set to push up borrowing costs for some homeowners and businesses, while potentially delivering better returns for savers, according to UAE-based financial experts.
The CBUAE raised its Base Rate by 25 basis points from 3.65 per cent to 3.9 per cent, effective September 17, following a similar increase by the US Federal Reserve.
The Fed raised its target range by 25 basis points to 3.75-4 per cent on Wednesday, its first increase since 2023. The UAE’s monetary policy closely tracks US rates because of the dirham’s peg to the dollar.
For UAE consumers and companies, the impact could increasingly be felt through mortgages and business loans, particularly borrowing linked to the Emirates Interbank Offered Rate (EIBOR).
Vijay Valecha, chief investment officer at Century Financial, said the CBUAE’s Base Rate influences overnight funding costs, meaning EIBOR is also expected to move higher.
“In terms of impact, mortgages will definitely feel it. Most UAE home loans have a fixed rate for 1-5 years before switching to EIBOR plus a bank margin. Borrowers already on variable rates will see their monthly payments increase when their loans reset,” Valecha said.
The impact will not, however, be uniform across mortgage holders.
Valecha said borrowers coming off fixed-rate deals agreed in 2020 and 2021 could experience a larger increase because they may have locked in significantly lower rates. Those already paying fixed rates of around 5.5 per cent or higher could see little or no immediate change.
New mortgage customers could also face higher borrowing costs.
“New home-loan applicants are also likely to face higher rates, with offers moving above the mid-3 per cent levels seen through much of 2026,” Valecha said.
SMEs face higher financing costs
The impact is also expected to extend to UAE businesses, particularly small and medium-sized enterprises (SMEs) with floating-rate debt.
“Companies and SMEs with EIBOR-linked loans will pay more interest, adding pressure to margins, particularly in sectors already dealing with higher energy and shipping costs,” Valecha said.
Hamza Dweik, head of trading (MENA) at Saxo Bank, said financing costs are likely to remain elevated as the UAE follows the direction of US monetary policy.
“For the UAE, the immediate implication is that financing costs are likely to remain elevated. Given the dirham’s peg to the US dollar, the UAE Central Bank typically mirrors Fed moves, meaning borrowing costs for mortgages, personal loans and business lending are unlikely to ease anytime soon,” Dweik said.
However, he expects the wider UAE economy to be able to absorb the tighter monetary environment, supported by non-oil economic activity, population growth, tourism and continued investment.
“While higher rates may slow some credit demand, particularly among SMEs and highly leveraged borrowers, they are unlikely to materially derail growth. Rather, the impact is more likely to be seen through a moderation in borrowing activity rather than a sharp slowdown in economic activity,” Dweik said.
Madhur Kakkar, founder and CEO of Elevate Financial Services, similarly pointed to the GCC’s underlying financial position as a buffer against higher rates.
“For the UAE and the wider GCC, the impact is largely transmitted through the dollar peg, implying tighter domestic financial conditions and higher borrowing costs. That said, the region remains relatively well positioned given strong banking-system liquidity, healthy sovereign balance sheets and continued support from the energy sector,” Kakkar said.
Personal loans, credit cards and deposits
Existing personal and auto loan borrowers could be less exposed to the latest increase because these products are generally offered at fixed rates for the duration of the loan, according to Valecha.
Credit card rates are also unlikely to change significantly because they are already considerably higher than money-market rates.
Savers, meanwhile, could emerge as beneficiaries if banks respond to higher benchmark rates by increasing deposit rates.
“There is a benefit for savers. Deposit rates, which declined during the previous easing cycle, could now move higher. UAE banks may also see some improvement in lending margins as interest rates rise,” Valecha said.
Dweik added: “Higher benchmark rates support stronger returns on deposits and cash holdings, which has become an increasingly attractive proposition after years of near-zero rates.”
Could UAE rates rise again?
Attention will now shift to how long the higher-rate environment lasts and whether the Fed delivers another increase this year.
Kakkar said the Fed’s accompanying message was ultimately more significant for markets than the widely anticipated 25-basis-point increase itself.
“The Committee is signalling that inflation risks are not yet fully behind it, keeping the door open for further tightening and reinforcing a higher-for-longer rate environment,” he said.
Dweik said another US increase before the end of the year remains possible, which would have implications for borrowers in the UAE.
“The bigger takeaway is that the Fed is signaling inflation remains a concern. US inflation is still running at around 3.4 per cent, well above the Fed’s 2 per cent target, and policymakers have indicated that one additional rate increase this year remains a possibility. If that outlook materialises, UAE borrowers could face elevated financing costs for longer than previously expected.”
For UAE households and companies, Dweik said the key issue has therefore shifted from the latest increase itself to the duration of elevated rates.
“I think the key question for the UAE is no longer whether rates move higher today, but how long they stay at these levels. The Fed has effectively signaled that inflation remains the priority, which suggests borrowing costs across the UAE are likely to remain elevated well into 2027,” Dweik concluded.
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