UAE businesses have some balancing to do as bank loans start to rise with US rate hikes

UAE businesses have some balancing to do as bank loans start to rise with US rate hikes

Dubai: The US Federal Reserve is hinting at sharper increases in interest rates and which will have direct impact on lending rates - and the real effective exchange rate - of the UAE dirham. On Monday, Fed Chair Jerome Powell said the central bank must move "expeditiously" to raise rates. “The Fed has already signalled a much stronger appetite to combat inflation, indicating a further six rate increases in 2022,” said Fawad Razaqzada, Market Analyst at ThinkMarkets. “But judging by Powell’s latest comments and those from some of the Fed officials, there is a good possibility that we may even see a 50 basis point increase in May.” A sharper rise could mean a parallel rise in interest rates in the UAE because of the dirham’s dollar peg and the country’s need to keep its currency and economy stable. Any rate increase is expected to see a rise in funding costs for individuals, companies and even banks, affecting disposable incomes and profits, respectively. It also means much more than higher funding costs for individuals and businesses, especially export-driven businesses. Rising strength of the dirham along the lines of dollar could make UAE exports - including ‘deemed exports’ such as tourism,