The UAE Central Bank in Abu Dhabi
The UAE Central Bank in Abu Dhabi. Image Credit: Gulf News Archives

Dubai: The Central Bank of the UAE on Wednesday hiked its base rate by 25 basis points after the US Federal Reserve increased interest rates by the same margin, the first time since 2018.

The UAE Central Bank said it has also decided to maintain the rate applicable to borrowing short-term liquidity from it through all standing credit facilities at 50 basis points above the base rate.

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In its announcement, the Fed signalled six more such hikes this year, launching a campaign to tackle the fastest inflation in four decades even as risks to economic growth mount.

Fed policymakers led by Chair Jerome Powell voted 8-1 to lift their key rate to a target range of 0.25 per cent to 0.5 per cent, the first increase since 2018, after two years of holding borrowing costs near zero to cushion the economy from the pandemic.

What the rate hike means for UAE borrowers

An interest rate hike would impact cost of funds of both banks and borrowers translating into higher financing costs at all levels. Individuals and corporates who have fixed rate loans will stand to benefit if their rates are locked for the entire term of the loan. Those who have loans with flexible rates will see an immediate jump in their interest costs.

With inputs from Reuters