Banks reduce interest on financing…and “real estate” benefits the most

Two bankers said that banks operating in the country will reduce interest rates on all financing, after the Central Bank announced, the evening before yesterday, a reduction of 50 basis points (half a percent), for the first time since 2020, coinciding with a similar step taken by the US Federal Reserve, due to the policy of pegging the dirham to the dollar.

The two bankers confirmed to “Emarat Al Youm” that some banks had already anticipated the Central Bank’s decision and reduced interest rates within various offers on personal and real estate loans and car financing, noting that real estate loans are the ones that benefit the most from the interest rate reduction, whether new or old, due to their association with the “EIBOR” rate, up and down.

They expected further cuts in key interest rates as part of the US Federal Reserve’s tightening monetary policy package during its remaining three meetings this year.

In detail, the US Federal Reserve cut interest rates the night before yesterday, exceeding expectations that bet on a reduction of only a quarter of a percent, as the council approved a reduction of 50 basis points, equivalent to half a percent, for the first time in four years of continuous raising and fixing eight consecutive times, as the last time the “Fed” cut interest was in 2020 to mitigate the effects of the “Corona” pandemic at that time.

In this context, the Central Bank of the UAE announced, the evening before yesterday, a reduction in the “base rate” on overnight deposit facilities by 50 basis points, from 5.40% to 4.90%, due to the policy of pegging the dirham to the dollar, effective yesterday, Thursday, September 19.

The Central Bank stated in a statement that this decision comes after the Federal Reserve announced a 50 basis point reduction in the interest rate on reserve balances at its meeting held on Wednesday.

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

According to the Central Bank’s statement, the base rate, which is linked to the interest rate on reserve balances approved by the US Federal Reserve, determines the general stance of monetary policy and provides a minimum for the effective interest rate for overnight money market prices in the country.

Commenting, banking expert Amjad Nasr said that all expectations were in favor of reducing interest rates, as the difference was on the percentage of reduction, considering that the time has come to ease the tightening of US monetary policy that has continued over the past four years.

He added that the reduction would contribute to increasing demand for financing, as banks have already taken the initiative to reduce the percentage on various financings in anticipation of the Central Bank’s decision, supported by their record levels of liquidity.

Nasr explained that all types of financing and loans will have their interest rates reduced, but the most beneficial will be real estate loans, given their connection to the “EIBOR” (interbank lending rate), up and down.

Nasr continued: “Expectations indicate further reductions in interest rates over the next year, because the increases were significant, and recorded the highest rate since 2000.”

For his part, banking expert Ahmed Arafat said that old real estate loan installments will witness a decline after the interest rate is reduced, in addition to encouraging banks to provide similar offers and discounts for new financing of all kinds, whether personal, real estate or car financing.

He added: “It is expected that the interest rate will be reduced during the remaining three meetings of the US Federal Reserve, in light of the markets’ need, so we are expected to witness a boom in financing, due to the availability of large amounts of liquidity in banks.”

He pointed out that the interest rate hike continued for about two and a half years, followed by a fixation for eight consecutive times, which directly affected the value of real estate financing installments as well as the movement of demand, expecting that the coming period will witness a jump in demand for real estate financing after the expected series of reductions.