The Central Bank of the UAE (CBUAE) will raise interest rates on Certificates of Deposit on September 27, in line with the US Federal Reserve’s decision to increase the Federal Funds Rate by 25 basis points.
Certificates of Deposit are issued by CBUAE to banks operating in the country, and are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system.
The decision by the CBUAE to raise rates is a result of the dirham’s peg to the US dollar and follows a similar increase in June.
Car loans and mortgages, on the other hand, tend to remain unaffected, whereas business profitability can be negatively impacted as borrowing costs go up. Those increases in credit card rates can also dampen consumer spending. The rates on fixed cash deposits tend to rise.
The UAE, of course, works in different ways and the UAECB has recently pledged to take a much more active role in monitoring bank fees. Any change in rates would have to be communicated clearly and with plenty of warning.