Experts: High interest rates boost inflation stability

Hussam Abdulnabi (Dubai)

Financial experts said that the UAE Central Bank’s decision to raise the interest rate in line with the US Federal Reserve’s decision is a necessary step, especially in light of the UAE dirham’s link to the US dollar. They assured Al-Ittihad that the central banks in the world follow the decisions of the US Federal Reserve when the interest rate rises or reduces, noting that this increase is the third since last March, aiming to enhance the stability of inflation rates in consumer prices in global and local markets.

dollar peg
Osama Al-Ashry, a member of the Association of Technical Analysts – the United Kingdom, said that the Central Bank’s tracking of the US Federal Reserve’s steps to raise interest rates comes as a result of the UAE dirham’s link to the US dollar in the settlement of oil futures contracts, which requires compliance with the same Fed decisions, whether in raising or lowering interest rates to avoid differences. In the currency, he explained that joining the UAE Central Bank to the US Federal Reserve is not linked to the inflation rate in the UAE at all, but aims to preserve the value of oil futures contracts. Al-Ashry pointed out that raising interest rates in the UAE in response to the US Federal Reserve’s decision to increase interest rates would increase the cost of borrowing, which will mostly reflect positively on the profitability of banks in the short and medium term, starting from the banks’ profitability during the current year. The UAE Central Bank continues to track the US Federal Reserve’s decisions regarding the increase or decrease of interest rates for a long time and in the same percentage specified for the increase or decrease, by the US Federal Reserve.

Bank profitability
For his part, Tariq Qaqish stated, that the changes in the interest rate have positive and negative effects on the markets, as high interest rates mean that consumers do not have much available income and they must reduce spending, and therefore this means controlling inflation, indicating that the banking sector In the UAE, it will be positively affected by the increase in profitability rates in light of the rise in the bank interest rate.
Mohamed Shaker, the financial expert, refuted the special concerns that credit activity would be affected by raising the interest rate, especially on loans and mortgages, saying that the rate of increase is the basis and will not lead to customers stopping borrowing or pushing them to borrow at a lower rate. Shakir attributed this to the fact that the rise will have only a marginal effect on the interest payments of borrowers.
He stressed that the interest rate hike has a more pronounced impact on the countries that are heavily indebted and have a large amount of external debt, by increasing the cost of borrowing and increasing debt service, and certainly the UAE is not among these countries.