It’s interesting how financial changes happening halfway across the world have a direct impact on us, here in the UAE. We’re talking about the latest US Fed rate hike of 0.25 percent, and the consequential rate hike of the same magnitude by our very own financial regulator – The UAE Central Bank. takes a look at how and why these changes impact the average UAE resident’s personal finances.

That’s a Total of Four Interest Rate Hikes This Year

The UAE Central Bank mimics the monetary policy changes of the US Federal Reserve because the Dirham is pegged to the US Dollar. The US Fed has announced four quarter percent rate hikes this year and the UAE has followed suit. That brings the Central Bank’s key borrowing rate (the interest rate at which the Central Bank issues its Certificates of Deposit) to 2.5 percent, up from 1.5 percent at the start of 2018.

The US Fed has been raising its benchmark rate steadily since 2015 – that’s nine hikes already. The regulator is moving away from lower-than-normal interest rates, which were in place as a stimulus for economic activity in the country. With the US economy now going strong, the Fed’s monetary policy doesn’t need to be as ‘accommodative’.

[Related: What Would Rising Interest Rates Mean for ‘You’?]

How Will This Impact You?

A rise in the Central Bank’s key policy rate is both good and bad news for UAE residents. Here’s why…

Definitely good news for savers

If you’ve overlooked the benefits of savings and deposit accounts till now, this may be good time to supplement your current account with an interest-earning one. Potentially higher interest rates on deposit accounts can help you beat the Dirham-eroding effect of inflation and get the most out of your earnings.

Bad news for borrowers?

Interest rates on most floating rate loan products, especially home loans, are based on the three-month EIBOR (Emirates Interbank Offered Rate). And the EIBOR doesn’t exactly mirror the changes in the Central Bank’s key policy rate. Banks can choose to increase their interest rates or keep them as is, based on their own discretion and interest rate policies.

But that being said, interest and profit rates are already looking higher than what they used to be before the Central Bank embarked on the rate-hike train. With the cost of borrowing steadily going up, loans have already become expensive and may become more so in the near future.

Here are a few borrower-friendly tips to help you navigate these interest rate changes:

  • Look for home loans that offer a locked-in fixed interest rate for the initial tenure, say for the first two to three years. Any rate hike will only impact your interest rate after this fixed-rate tenure expires.
  • Still using the same credit card? Make sure you compare the interest rate on your card with other products out there. If you have outstanding debt on your card, you could look for zero percent balance transfer options. This could allow you take advantage of a zero-interest period of say three to six months, which would be the ideal time to repay your outstanding credit card debt.
  • Compare your options thoroughly and watch out for processing fee discounts, lower corporate rates and introductory offers when taking a personal, car or home loan.