Consumers in the UAE are likely to face continued high interest rates as the Central Bank of the UAE (CBUAE) keeps its Base Rate unchanged at 5.40%. This decision mirrors the US Federal Reserve's cautious stance of leaving interest rates unchanged. Despite the higher rates, the UAE's strong economy is expected to continue growing, and banks are likely to experience strong loan growth. The stock market has rallied, possibly due to strong corporate earnings and investor expectations of future rate cuts. However, the rise in yields on 10-year Treasury notes has led to falling bond prices, making bonds more attractive for new investments.
The CBUAE has revised its inflation forecast downwards to 2.3% for 2024, compared to its previous projection of 2.5%. The bank also forecasts inflation to average 2.3% in 2025. In Q1 of 2024, Dubai's headline consumer price index inflation averaged 3.4% annually. In April 2024, inflation in Dubai accelerated to 3.9%, primarily due to a significant increase in transport prices. Housing prices in Dubai continued to rise, reaching 6.5% on an annual basis during April. The CBUAE report notes that uncertainties surrounding the global economy remain high, with potential divergent implications for the UAE economy. The report also states that depending on inflation dynamics in the US and EU, interest rate cuts will follow different schedules. The central bank expects the appreciation of the USD and the dirham to mitigate inflation in the UAE [643559e6] [53a76ddb].