UAE borrowers brace for slower rate cuts in 2026 as US Fed turns cautious

Dubai: UAE borrowers hoping for cheaper mortgages and loan payments in 2026 may need to stay patient, as mixed signals from the US suggest interest rate cuts could come slowly, keeping monthly financing costs only slightly lower in the near term.

US Federal Reserve officials remain divided over how quickly to lower rates next year, even after cutting three times in 2025. The Fed’s benchmark rate now stands at around 3.6%, its lowest in nearly three years, but the meeting minutes reveal disagreements: several policymakers wanted to pause, while one pushed for a deeper cut.

In response to the US move, the UAE Central Bank lowered its Base Rate from 3.90% to 3.65% in December, which slightly reduced borrowing costs for banks and consumers. This also brought down EIBOR, the benchmark that influences mortgage payments and business financing. For most UAE borrowers, the reduction eased pressure a little — but not enough to dramatically change monthly repayments.

US policymakers are cautious

Fed officials say they want more evidence before making sharper moves. Inflation in the US has cooled to 2.7%, but remains above the 2% goal, while unemployment has risen to 4.6%, the highest in four years. Some officials worry that labour conditions may be worse than data suggests and want to avoid cutting too fast.

Fed Chair Jerome Powell explained the dilemma, saying recent decisions were partly driven by concern that the job market might be weaker than it appears. This cautious approach increases the chance that changes to borrowing costs — including in the UAE — will come slowly.

How many cuts seen in 2026?

There is no consensus among policymakers on how many cuts to expect next year:

• 7 Fed officials expect zero cuts

• 4 expect one cut

• 8 expect two or more cuts

Early-2026 economic data will be key. If inflation keeps falling and hiring weakens, cuts could accelerate. If inflation picks up again, rate reductions could stall. For now, only one cut is officially pencilled in, and the timing is undecided.

2026 effect on UAE loans, rates

Because UAE rates tend to follow the US, local borrowing costs are likely to move gradually rather than sharply. Bank analysts say a scenario involving one or two US cuts could reduce monthly mortgage instalments slightly and offer some relief for households and businesses after years of tightening.

But if the Fed slows or pauses cutting, UAE borrowers may face longer periods of higher costs, particularly those who took loans during peak rates.

Property advisers say mixed rate expectations could influence buying decisions. Some buyers may wait for lower rates before taking on a mortgage, while others may buy sooner to secure prices, especially given steady economic growth and population inflows in the UAE.

Expect bigger rate relief later?

UAE market watchers expect the first half of 2026 to be crucial. If inflation cools steadily in the US, UAE borrowers could see clearer rate relief in the second half of the year. If inflation sticks, cuts may stay limited, keeping mortgage and loan costs relatively high for longer.

For now, the broad expectation is slow, cautious adjustments, not major changes overnight. But if the Fed ultimately leans toward the group forecasting two or more cuts, borrowers in the UAE could feel more noticeable relief later in the year — especially those with variable-rate financing or new borrowing plans.

Key takeaways for UAE borrowers

• Expect small rate changes early in the year

• Bigger relief depends on US inflation and jobs data

• Mortgage holders may benefit more if cuts speed up later

• Businesses planning expansion may gain from lower financing costs

In short: watch the US data, because that’s what will drive borrowing costs in the UAE — slowly at first, and potentially more meaningfully later in 2026.