UAE interest rate trends in 2020
Submitted by Jack at 28 December 2019 in finance
Gulf especially UAE (United Arab Emirates) always has been a great place for business activities and opportunities. From the business and investment purposes and from the perspective of development UAE has a remarkable history. Now in this era of great and revolutionary advancements, UAE has a spotlight on it, changing a little in its policy can affect things at a wider angle.
Interest has been a great economical determinant and tool used by federal or state government to manage and control money supply in the market. Other than that the government uses this tool for its monetary policy and other fiscal strategies. Thus, interest rates are indispensably one of the factors who can pave the roads of new openings in view of the economy. Because UAE has an open economy infrastructure so an increase or decrease in interest rates will be highly effective in terms of economic growth domestically and overall.
The central bank
The central bank of Unite Arab emirates is one main body that looks after and governs the interest rate affairs within the UAE. So, the interest rate decisions are taken by the authority of governor central bank United Arab Emirates and from November 2007 to onwards the benchmark is overnight purchase rate.
Central banks perceived that lowering the cost of borrowing money will open up the doors for lenders to gain more advantages from money borrowed at cheaper rates. Other than that to control the money supply and real estate recession the central bank is lowering the rates so that people do not deposit money rather they spend it. The central bank of the United Arab Emirates wants money to circulate more instead of big deposited for high returns.
Interest rate trends in 2020 were towards declining slot or somewhat constant. The highest rate of 2020 was in February 2020, and the lowest rate was in the recent September 2020. Overall, the rates were from 3-2.4 and no less or more than it. Borrowing became cheaper for lenders but these rates were discouraging for investors in banking sectors. But across the market, the real estate prices will be more than before. Also, tourism became more attractive owing to these lower interest rates.
Keeping in view all the stats and data, the interest rates of UAE have been an average of 1.4 percent from 2007 to 2020. The highest interest rate in the history of all 12 years has been 4.75 back in 2007 and the lowest rate has been 1.00 percent in 2020. Most probably this much low-interest-rate was to cover up the great economic crisis in history. UAE was not alone who lowered the rate but also Saudi Arabia and other gulfs lowered their rate to cater to disaster needs. But reversal has been seen from 2015 to onwards; the rates are rising high and until the end of 2019 rates were rising hitherto.
Declining interest rates - Why rates are declining?
UAE has responded speedily towards the US cut in interest rates and therefore, they also did the same. The basis points by the central bank of the United Arab Emirates have been reduced from 25 basis points to 2.25%. According to the country’s central bank governor, a decrease in interest rates will not only protect but also support the economy. Against rising external risks these low rates will also protect the UAE's economy. Moreover, the governor also said that when the shift from one cycle to another occurs, the low rates are quite favorable.
UAE was much under the global rising risks due to the diversified risks that have impacts on both economical and domestic growths. These low rates will help out to recover the economy and owing to these low rates the UAE policymakers seem to be much confident in recovery.
Also, the US has cut the rates a third time this year by a great percentage and thus a global pressure occurs to cut the rates further. And most of the gulf cooperation council follows the federal bank’s policy so lower rates are expected from UAE too.
Since 2014, the low price of oil has been a disastrous situation so to cover up this economy gap low rates must be a good initiative.
Low-interest rates have effects on the currency rate
Everything has a cost, nothing comes without a fare. Cutting the rates of interest will affect the domestic currency and also the growth of the domestic economy. He only winners of this situation are those who deal in dollars so that they may not face exchange rate risk. But yes, those with local currency and low rates they will gain much low. Also, this situation is a subject matter if the dollar rates do not all. But definitely by viewing the trends and central bank policies, UAE is going to lower the rates further in the coming years too.