Experts: High interest rates boost inflation stability

Hussam Abdulnabi (Dubai)

Financial experts said 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 link between the UAE dirham Arab Emirates and the US dollar. They assured Al-Ittihad that the world’s central banks follow the decisions of the US Federal Reserve when the interest rate rises or falls, noting that this increase is the third since last March, aimed at strengthening the stability of interest rates. consumer price inflation. in global and local markets.

dollar peg
Osama Al-Ashry, a member of the Technical Analysts Association – UK, said the Central Bank’s monitoring of the US Federal Reserve’s moves to raise interest rates stems from the link between the UAE dirham Arab Emirates and US dollar in settlement. oil futures, which requires compliance with the same Fed decisions, whether to raise or lower interest rates to avoid differences. When it comes to currencies, he explained that UAE Central Bank’s membership in the US Federal Reserve is not tied to the rate of inflation in the UAE, but is intended to preserve the value of oil futures. Al-Ashry pointed out that the increase in interest rates in the United Arab Emirates in response to the decision of the United States Federal Reserve to raise interest rates will increase the cost of borrowing, which will mainly affect positively on the profitability of banks in the short and medium term, based on the profitability of banks during the current year. The Central Bank of the United Arab Emirates continues to follow the decisions of the United States Federal Reserve regarding the increase or decrease in interest rates for a long period of time and in the same percentage specified for the increase or decrease, by the Reserve US Federal.

Bank profitability
For his part, Tariq Qaqish said that interest rate changes have both positive and negative effects on the markets, as high interest rates mean that consumers do not have much disposable income and they have to reduce their expenses, 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 given the increase in the bank interest rate.
Mohamed Shaker, the financial expert, refuted particular concerns that credit activity would be affected by the increase in the interest rate, especially on loans and mortgages, saying the rate of increase is the basis and will not lead clients to stop borrowing or to push them to borrow. borrow at a lower rate. Shakir attributed this to the fact that the hike will only have a marginal effect on borrowers’ interest payments.
He pointed out that rising interest rates have a more pronounced impact on countries that are heavily indebted and have large external debt, by increasing the cost of borrowing and increasing debt servicing, and the UAE does not certainly not one of those countries.

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