Bankers have stated that borrowing from banks will become 'cheaper' for consumers in the near future, after the Central Bank cut interest rates for the third consecutive time in the final quarter of the current year. They attributed this to a decrease in the cost of funds and the availability of high levels of liquidity in banks. They explained to 'Emirates Today' that all types of new financing will become cheaper, and the current installments on existing mortgage loans will decrease, as they are linked to the 'EIBOR' rate up and down, unless the interest rate has been fixed for a certain number of years. They added that the decline in interest rates also gives holders of personal loans an opportunity to refinance their loans on better terms with lower monthly installments, in addition to increasing demand for real estate. In detail, the Central Bank cut the 'base rate' on overnight deposit facilities by 25 basis points, from 3.90% to 3.65%, effective yesterday, Thursday, December 11. This decision came after the US Federal Reserve announced a 25 basis point cut to the 'reserve' interest rate at its meeting held the day before yesterday. The Central Bank also decided to keep 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. The base rate, which is linked to the interest rate on 'reserve' balances set by the Federal Reserve, sets the general course of monetary policy and provides a floor for the effective interest rate on the overnight money market in the country. In response, banking expert Ahmed Arafat stated that 'cutting interest rates for the third consecutive time in the fourth quarter of 2025 means more financing at a lower price, and it also helps to reduce the value of current mortgage installments, as they are linked to the (EIBOR) rate up and down, as long as there is no agreement to fix the interest rate for a certain number of years at the beginning of the repayment'. He added: 'The value of mortgage installments is expected to decrease by 160 to 180 dirhams for every million dirhams financed, in addition to the possibility of refinancing on better terms and at a lower rate'. Arafat continued: 'It is expected that the Federal Reserve will continue to cut interest rates in the first quarter of 2026, which means more demand for financing, and thus an increase in spending and a revival of markets, along with an increase in demand for real estate due to the ease and abundance of financing at a low interest rate'. On her part, banking expert Sheikha Al Ali said that 'cutting interest rates means cheaper lending for consumers and a big incentive to enter into real estate investment, and an increase in the refinancing of existing debts on better terms'. She explained that 'banks have historical levels of liquidity, and cutting interest rates will increase the demand for financing, which helps to employ this liquidity either towards individuals or companies'. Al Ali clarified that 'the decrease in the cost of debt service gives households more flexibility in spending on consumer goods or small projects instead of paying high bills, in addition to boosting investor confidence', but she said: 'On the other hand, a cut in interest rates leads to a decline in returns on savings represented by bank deposits, but overall, global markets need more cuts to increase momentum and activity'.
