Borrowing will become “cheaper” for consumers after the interest rate cut

Two bankers said that borrowing from banks will become “cheaper” for consumers during the coming period, after the Central Bank reduced interest, the day before yesterday, for the third time in a row, during the last quarter of this year, attributing this to the decrease in the cost of funds and the availability of large levels of liquidity in banks.

They explained to “Emirates Today” that all types of new financing will become at a lower price, and the value of current installments for real estate loans will decrease, as they are linked to the EIBOR price up and down, unless there is a stabilization of interest over a certain number of years. They added that the decline in the interest rate also gives personal loan holders the opportunity to refinance their loans with better terms and lower values ​​for the monthly installment, in addition to increasing demand for real estate.

In detail, the Central Bank reduced, the day before yesterday, the “base rate” on overnight deposit facilities by 25 basis points, from 3.90% to 3.65%, starting yesterday, Thursday, December 11.

This decision comes after the US Federal Reserve announced that it would reduce the interest rate on “reserve” balances by 25 basis points, 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 approved by the “Federal Reserve,” determines the general position of monetary policy, and also provides a minimum effective interest rate for overnight money market rates in the country.

In response to this, banking expert, Ahmed Arafat, said, “Reducing interest for the third time in a row during the fourth quarter of 2025 means more financing at a cheaper price. It also contributes to reducing the values ​​of current real estate installments, as they are linked to the EIBOR rate, up and down, as long as it is not agreed to fix the interest within a certain number from the start of payment.”

He added: “It is expected that the value of real estate installments will decrease by 160 to 180 dirhams for every million dirhams of financing, in addition to the possibility of refinancing on better terms and a lower price.”

Arafat continued: “It is expected that the Federal Reserve will continue to reduce interest rates during the first quarter of 2026, which means more demand for financing, and thus increased spending and a recovery in markets, in addition to an increase in demand for real estate due to the ease and abundance of financing at a low interest rate.”

For her part, banking expert, Sheikha Al-Ali, said, “Reducing interest means cheap lending to consumers, a great incentive to enter into real estate investment, and an increase in the movement to purchase existing debts on better terms.” She explained that “banks have historic levels of liquidity, and reducing interest would increase the demand for financing, which contributes to employing this liquidity, whether toward individuals or companies.”

Al-Ali explained that “the lower cost of debt service gives families greater flexibility in spending on consumer goods or small projects, instead of paying high bills, in addition to enhancing investor confidence,” but she said: “On the other hand, lowering interest rates leads to a decline in savings returns represented by bank deposits, but in general, global markets need further reductions to increase momentum and activity.”