Loans in UAE, Saudi Arabia and Bahrain just got cheaper with lower interest rates

Dubai: Taking out loans across many GCC countries just got cheaper on Thursday as central banks cut interest rates.

Central banks in the UAE, Saudi Arabia, and Bahrain all cut their interest rates by 25 basis points after the US Federal Reserve lowered its rates for the first time since the financial crisis. Kuwait’s central bank did not cut its rate, though, keeping it unchanged.

The move comes as all three countries’ currencies are pegged to the US dollar, while Kuwait’s currency is pegged to a basket of international currencies.

What does this mean for customers

For banking consumers, the cut in interest rates will mean lower cost of borrowing for loans, credit cards, and mortgages, with rates now set between 2 per cent and 2.25 per cent.

Interest rate cuts have traditionally been meant to drive consumer and corporate spending to boost economic growth. Lower interest rates also tend to boost inflation rates as spending increases.

Announcing its historic decision to cut rates, the US Federal Reserve said it did so to mitigate the risks of a possible economic downturn. The central bank said it hoped the cut will help keep the US economy healthy, especially against macroeconomic risks coming from trade tensions.

The Fed also hinted that it may cut rates again this year to insulate the US economy from risks.

For banks, the cut in rates can hurt earnings as banks see more interest income with higher interest rates. In the past two years, interest income for UAE banks has been on the rise as the Federal Reserve (and the UAE Central Bank) hiked interest rates.