There is an increased likelihood that interest rates will increase further in the near future, so residents should apply for loans and mortgages as soon as possible.
After the US Federal Reserve hiked interest rates earlier in the day to cool inflation in the North American nation, the UAE Central Bank increased its overnight deposit facility rate by 75 basis points late on Wednesday.
Consumers may begin to feel the sting of higher interest rates, according to Century Financial's Vijay Valecha. “Markets are expecting a series of rate increases this year which would then start aggressively affecting consumers' purchasing decisions,” he said.
Since the UAE currency is pegged to the dollar, the central bank usually follows the Fed's policy on rates.
“In order to combat rising inflation, it is anticipated that Fed would hike interest rates going forward. In a rising interest rate environment, consumers who have planned to take out personal or auto loans could consider taking them sooner when interest rates are relatively low and yet to rise further. If the loans are taken out at a later date when interest rates have risen more, the monthly payments would increase,” he said.
In order to beat rising inflation, both the US and UAE central banks are likely to raise rates further, according to Anish Mehta, a finance professional.
Consumers need to plan and restructure their finances, according to Mehta. “Those who have home loans at variable interest rates can lock in their interest rate a fixed rate of interest. With the increased lending rates, banks have to increase their saving rates. Therefore, it's time for consumers to shop around and switch their savings to banks who give higher interest on their investments,” he said.
The former chairman of ICAI Dubai suggested consumers minimize or repay their credit card and other loans outstanding, as otherwise, they must pay higher interest and delay their repayment of principal.
To reduce the impact of the rate hike, Vijay Valecha advised UAE consumers to opt for fixed long-term loans rather than floating rate loans.
Fixed long-term mortgage loans allow consumers to lock in at a lower rate right now. As far as fixed-rate mortgages go, a Central bank rate increase does not directly impact these longer-term loans, but it does influence movement. However, floating rates do change as the market interest rate increases.”
As a result, consumers who took out fixed loans before the first rate hike in March will benefit from the lower interest rates they secured. Consumers with variable-rate loans, however, would be at a disadvantage since Fed rate hikes would affect them immediately.