Central Bank takes lead from US Fed and raises interest rates

Bankers: ‘Savers will gain and debtors will feel the pain’

The decision by the Central Bank to follow the US Fed eral Reserve and increase interest rates comes as a blessing for savers but will hurt those who have debt.

The benchmark that banks use to determine lending rates, the three- month Emirates Interbank Offered Rate, responded to the Central Bank’s move, increasing to 1.46 per cent from 1.41 per cent yesterday.

Before the financial crisis of 2008 that prompted the Fed to take rates close to zero, Eibor stood at 5.5 per cent, a level that analysts say will not be rescaled any time soon.

“If you are a saver it won’t make much of a difference immediately, but it will over time go up,” said Jaap Meijer, the head of research at the Dubai-based investment bank Arqaam.

“Over time there will be more rate hikes and saving rates will go up. It will be in the next two years.

“Mortgages will feel more pain but savers get more in gain.” For example, the brokerage Cluttons estimates that the owner of a 4,000- square- foot villa in Dubai costing Dh1,120 a square foot is likely to see an increase in monthly payments of nearly Dh500.

Banks are not obliged to raise rates on savings accounts immediately on the back of a rate hike, but customers with loans or savings that are tied contractually to Eibor will see changes reflected in their statements in the next couple of months.

Bankers who spoke to The National said that while lenders do not have to raise rates on savings accounts, not doing so in line with the market rates would lead to customers shopping around for better deals.

Newsmaker, Weekend, page 5