Guarantee not to raise the value of installments in real estate loans
Two bankers: Fixing “interest” encourages borrowing and stimulates the economy
Ahmed Youssef: “Stabilizing interest means that banks do not re-price existing loans, especially real estate.”
Two banking experts said that fixing the interest rate and not raising it would encourage the borrowing movement, whether by the government or individuals, which would move the market and push the wheel of the economy.
They added to "Emirates Today" that the fixation also means that banks will not re-price existing loans, especially real estate ones, and therefore the borrowers' installments will not increase.
They said that the effects of fixing the interest rate are good, given that the cost of borrowing for companies will be low, as well as for individuals, thus reducing costs in general.
This came in response to the US Federal Reserve’s decision, last Wednesday, to keep interest rates unchanged in a range from “zero” to 0.25%, and the subsequent automatic fixation of the main interest in the UAE, given the policy of linking the dirham to the dollar.
Banking expert, Ahmed Yousef, said that fixing the interest rate means a strong dollar against other currencies, and this also means a strong dirham, given the policy of linking the dirham to the dollar.
He explained that fixing the interest rate at the present time has many advantages, including encouraging the government to borrow and establish projects, as well as for individuals, which moves the market and pushes the wheel of the economy.
Youssef added that the stabilization also means that banks will not re-price current loans, especially real estate ones, due to their association with "EIBOR", which is determined according to the main interest rate, and therefore the borrowers' installments will not increase.
Youssef considered that the US jobs report was very positive, which made stabilization at the present time an ideal option for the US economy, adding: “However, the markets expect a rate hike to occur at the Federal Council meeting next December.”
For his part, banking expert Amjad Nasr said that the peg of the dirham to the dollar has been around for decades, and therefore the procedures are similar between the UAE Central Bank and the US Federal Reserve.
He added: “In times of high inflation, the interest rate is raised to withdraw the liquidity that causes it from the market, but it happens that there are additional challenges such as that the economy is still in the stage of recovery from the effects of the (Corona) pandemic, and it needs more stimulus, which requires maintaining Low interest, which in some countries has reached (zero), to encourage companies to borrow to run their business and reduce operating costs.
Nasr stressed that the effects of fixing the interest rate are good, given that the cost of borrowing for companies will be low, as well as for individuals, thus reducing costs in general.
He explained that the stabilization is also positive for real estate loans, whether old to ensure that the value of the installments on the borrowers will not be raised, or the new ones, as the interest on them is linked to EIBOR, which is determined according to the main interest.
He stressed that this would move deposits in banks towards other investment sectors such as real estate or stocks, in search of better returns, which would be reflected in the wheel of economic activity.
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