The UAE has officially joined the global easing cycle, cutting interest rates in response to the U.S. Federal Reserve’s recent policy move. On 17th September 2025, the Central Bank of the UAE (CBUAE) reduced its overnight deposit facility rate to 4.15% from 4.40%, following the Fed’s decision to lower the rate on reserve balances by 25 basis points. With the Emirati dirham pegged to the U.S. dollar, this monetary alignment was expected, but the impact on UAE consumers, investors, and businesses could be transformative.
What This Means for Borrowers and Consumers
According to Vijay Valecha, Chief Investment Officer at Century Financial, the move is likely to boost consumer confidence and loosen wallets. “UAE consumers are expected to increase their spending behavior, especially on discretionary goods, as credit becomes more affordable. This is because when interest rates decrease, goods and services become more affordable as the cost of financing them also decreases,” he explains.
“Hence, if someone is looking to make a big-ticket purchase, such as a car or house, they would do that right now, as borrowing at lower rates to finance these purchases is very attractive.”
Not just big-ticket items, but credit card usage and short-term consumer lending may also rise. As interest rates drop, the Annual Percentage Rates (APR) on credit cards tend to decrease, encouraging more everyday spending across the retail sector.
A Boost for Real Estate and Mortgages
Property markets in Dubai and Abu Dhabi, which have already shown signs of resurgence, are expected to get another push. “A Fed rate cut would lower the central rates and thereby the mortgage rates in the region, which would stimulate the real estate sector. Meaning that real estate investments would now be much more affordable for retail buyers as well,” notes Valecha. As borrowing costs decline, more first-time buyers may enter the market, while existing homeowners could refinance at more favorable rates. Mortgage lenders and developers are likely to benefit from this increased demand.
Several sectors are primed to benefit from cheaper borrowing. According to Valecha, “In the UAE, the primary sectors that are positively impacted by rate cuts are automotive, real estate, and the consumer discretionary sector.”
With 82% of UAE residents holding at least one credit card, and nearly half using it weekly (as per Al Etihad Credit Bureau and Citibank UAE), the retail sector is particularly well-positioned to gain from an uptick in consumer activity. On the automotive side, lower auto loan rates could accelerate car sales.
Valecha adds that although the banking sector may face narrower net interest margins (NIMs), the volume of lending can offset that. “Although banks primarily earn from higher interest rates, it is worth noting that lower interest rates would imply higher volumes; hence, a decline in the net interest margins (NIMs) earned by banks can be offset by increased loan activity,” he says.
Backing this up, he highlights data from Q4 2024, when loan portfolios in the UAE grew by 9.5% YoY, driven largely by domestic lending, while bank deposits rose by 12.9% YoY, hitting AED 2.18 trillion.
“Banks generally tend to hold sovereign bonds in their balance sheets, and these bonds have a negative relationship with the yields. When interest rates fall, it tends to pull yields down as well, resulting in increased bond prices and, consequently, higher book values for banks, which again positively impact net income, thereby offsetting some of the NIM losses,” Valecha explains.
A Shift in Investment Behavior
From an investor standpoint, Hamza Dweik, Head of Trading MENA at Saxo Bank, sees a clear trend emerging. “The UAE’s decision to slash interest rates, in line with the U.S. Federal Reserve’s easing cycle, is poised to reshape investment behaviour, sectoral dynamics, and macroeconomic momentum across the region,” says Dweik.
“In the immediate aftermath, we are likely to see a gradual shift away from fixed-income instruments toward equities and alternative assets. With yields on traditional savings and bonds declining, investors will seek higher returns in riskier segments such as real estate, private equity, and regional stock markets.” This transition is expected to be especially pronounced among institutional investors and high-net-worth individuals, who are more sensitive to changes in yield and opportunity cost.
Short-Term Liquidity and Long-Term Diversification
The broader macroeconomic environment is also expected to benefit. “In the short term, regional markets could experience a liquidity-driven uplift. Lower borrowing costs will encourage corporate expansion, consumer spending, and real estate activity, especially in markets like Dubai and Abu Dhabi where mortgage demand is already rebounding,” Dweik explains.
“Over the longer term, the rate cut could support broader economic diversification efforts by making capital more accessible to non-oil sectors, including technology, logistics, and tourism.” However, Dweik also cautions that prolonged low rates could spark speculative behaviour and potential asset bubbles if not properly managed.
Oil Prices and Currency Dynamics
The global implications of the rate cut could also play in the UAE’s favor, particularly via oil markets. “A weaker dollar and lower global interest rates typically exert upward pressure on oil prices, which is a net positive for Gulf economies,” notes Dweik. “As the dollar depreciates, oil, priced in dollars, becomes cheaper for non-U.S. buyers, potentially boosting demand. This dynamic, coupled with lower financing costs for energy projects, could reinforce economic momentum across the GCC.”
Higher oil revenues would, in turn, boost fiscal spending, sovereign investments, and regional growth—a virtuous cycle that aligns with the UAE’s broader economic strategy.
While lower interest rates may dampen returns on fixed-income instruments, they open up new opportunities across real estate, consumer sectors, and equities. For borrowers, it’s a more affordable time to finance purchases. For investors, it may be time to look beyond traditional instruments. And for businesses, especially SMEs and startups, access to capital has just become a lot easier.
As Dweik concludes, “Overall, the UAE’s rate cut signals a pro-growth stance that could catalyse investment, consumption, and sectoral rebalancing in the months ahead.”
