Fed rate hike to raise costs for UAE borrowers, boost savers

Vijay Valecha, Tue, Sept 15, 2026 Khaleej Times

Mortgage holders and businesses could face higher financing costs as the UAE mirrors a likely US rate increase, while depositors stand to gain from better savings returns

UAE consumers are bracing for higher borrowing costs as financial markets overwhelmingly expect the US Federal Reserve to raise interest rates by 25 basis points on Wednesday, a move that would likely be mirrored by the UAE Central Bank because of the dirham’s peg to the US dollar.

The anticipated increase would lift the federal funds rate to 3.75-4.00 per cent and, if matched locally, raise the UAE Central Bank’s Base Rate from 3.65 per cent to 3.90 per cent. According to analysts, it would mark the first increase in the UAE policy rate cycle since July 2023.

Economists say the decision is unlikely to shock local markets because banks and investors have already been pricing in tighter monetary conditions. However, it could gradually increase financing costs for homeowners, businesses and borrowers with loans linked to the Emirates Interbank Offered Rate (EIBOR).

Rising interest payments
As an example, Dweik said that a Dh2 million variable-rate mortgage could cost borrowers several thousand dirhams more a year in interest payments following a quarter-point increase. He added that sectors such as real estate, construction and SME financing remain particularly sensitive to borrowing costs.

Vijay Valecha, Chief Investment Officer at Century Financial, said the UAE’s banking system is likely to feel the effects quickly because local rates move closely with US policy. “The dirham is pegged to the dollar, so the UAE Central Bank typically moves its Base Rate in step with the Fed,” Valecha said. “When it rises, lending rates across the system rise too.”

Valecha said existing borrowers on variable-rate mortgages would likely see monthly payments increase at their next reset date, while corporates and SMEs using EIBOR-linked financing should prepare for higher funding costs. He added that savers could benefit from improved deposit rates as banks adjust to the new interest-rate environment.

The bigger question for borrowers may be what comes after this week’s decision. Dweik said: “The bigger issue for the UAE is not whether rates rise by another 25 basis points tomorrow, but how long they remain elevated.”

Kakkar echoed that view, saying the Federal Reserve’s updated economic projections would be closely watched. “If the new projections reinforce a higher for longer outlook, UAE borrowers on three-and six-month EIBOR resets should assess their repayment capacity against the prospect of rates remaining elevated into 2027.”

Source
Khaleej Times