The UAE Central Bank Image Credit: Gulf News Archives

Dubai: Key interest rates in UAE have increased by 25 basis points effective today.

The UAE Central Bank has just announced that following the decision by the US Federal Reserve to lift the American benchmark lending rate, it will raise the interest rates applied to certificates of deposits.

“[This is] following the Federal Reserve board’s decision to increase the federal funds rate by 25 basis points at its meeting today,” the central bank said in a statement.

The repo rate that applies to borrowing short-term liquidity from the central bank against certificates of deposits has also been raised by 25 basis points to 2.25 per cent.

Analysts had earlier said that any adjustment to key interest rates could impact ordinary consumers . It could lead to higher consumer expenses on the cost of personal loans, car loans, mortgages and credit cards.

Savers should ideally see higher interest rates on savings, but banks may decide not to apply the same rate adjustment to deposits should they aim for more profits.

"There is a high possibility that the interest on loans such as personal, housing, auto, will rise as banks will try to counter the downward pressure on net interest margins. Consumers should thus subsequently expect to incur higher borrowing costs in the near term,” Raghu Mandagolathur, senior vice president for research at Kuwait Financial Centre “Markaz”, told Gulf News.

The certificates of deposit, which  the central bank issues to financial institutions operating in the country, are the monetary policy instrument through which changes in interest rates are transmitted to the UAE banking system.

The US Federal Reserve has raised the benchmark lending rate by 0.25 per cent to a range between 1.75 and 2 per cent.