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Expats In UAE Concerned Over Effects Of Interest Rate Hike
Published: | 18 Jun at 6 PM |
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Expat professionals living and working in the UAE are worried about the effect on the cost of living of last week’s interest rate hike.
Last Thursday’s announcement by the UAE’s Central Bank is the second this year, and is expected to impact borrowing costs including personal loans, car loans and mortgages. Businesses as well as residents will be affected, with expats working in cost-sensitive sectors such as tourism and the property sector showing increased concern. Large corporations with substantial loans will need to cover the increased interest by upping consumer prices at a time when the economy is slowing, and new projects may need to be put on hold due to increased borrowing costs. The only winners would appear to be savers who’ll net more interest on their investments.
The immediate result of the rate hike or 0.25 per cent will be a strengthened dirham at a time when the UAE is attempting to corner a slice of the world increase in tourism. Visitors from countries with weaker currencies may well decide to vacation elsewhere, and rising costs will impact the SME sector as it’s dependent mainly on bank borrowing for its financial survival. The increase would appear to be linked with the US Federal Reserve’s rate increase, followed almost immediately by similar increases in Saudi Arabia, Bahrain, Kuwait and Qatar.
According to accountancy firms working directly with the UAE’s expat community, the rate increase will affect the business community and consumers alike. The hike in mortgage rates is expected to cause a decrease in demand for property as an investment, and UAE businesses operating traditionally on low margins and liquidity may see margins reduced still further. However, for employers, the decision to replace the labour guarantee deposit with an insurance scheme is likely to boost liquidity at this difficult time. A major downside to the rate increase may be slower economic growth as large corporations will be subject to higher costs on raising debts from bond markets, thus compounding fiscal tightening.
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