Two experts predict a decrease in interest rates on loans and financing

Two banking experts expected that the banks will start, starting next week, to reduce the prices of various funds, after the central bank reduced yesterday the main interest by half a percentage point (50 basis points), in conjunction with the US Federal Reserve cutting interest by the same, the first evening From yesterday, to mitigate the effects of the spread of the Corona virus in the economy. And clarified, for "Emirates Today", that the reduction made by the "Emirates Central" for the benefit of the certificates of deposit comes as a natural step as a result of the policy of linking the dirham to the dollar, noting that the cost of money and borrowing between banks (EIBOR) decreases by itself, and by what Banks are allowed to reduce interest rates on loans and financing.

interest rates

In detail, the Central Bank announced, on the evening of yesterday, in an official statement, that it will, as of Wednesday, reduce the interest rates applied to the certificates of deposit issued by it, in line with the low interest rates on the US dollar, following the decision of the Federal Reserve (Central Bank) The US) cut the interest rate on federal funds by 50 basis points, at its meeting the day before yesterday, to mitigate the effects of Corona.

The repurchase rate (Repo), which applies to borrowing short-term liquidity from the central bank by guaranteeing certificates of deposit, was reduced by 50 basis points.

The reduction, which took place yesterday, is the third in a row during the last six months, but it was the largest, as it came with half a percentage point, while its rate in the previous two times was a quarter of a percentage point (25 basis points).

Borrowing price

In addition, the banking expert, Muhannad Awni, said that the central bank’s reduction of the interest on certificates of deposit reduces the inter-bank borrowing rate (EIBOR), and then the cost of money decreases, enabling banks to grant discounts to customers in the interest rate on loans and financing.

Awni pointed out that the reduction of the main interest is showing a rapid impact on the market, as businesses are moved by increasing demand for borrowing, given the low financing rate, and it is expected that banks will start, starting next week, work to reduce the prices of their financing, whether personal loans or cars.

Funds

For his part, the banking expert, Amjad Nasr, said that the US Federal Reserve also reduced the interest rate on bonds by more than 1%, and reduced the main interest by 0.5%. Likewise, the UAE central bank made a similar reduction in certificates of deposit.

He expected that this would reduce the prices of various funds, starting next week, especially real estate and commercial financing, and later real estate financing, as they are linked to the "EIBOR".

Nasr also expected to stimulate the demand for real estate financing, because of the attractive financing offers that usually accompany the lowering of prices, and that real estate financing is the biggest beneficiary of the interest rate reduction, as it is linked to the "EIBOR", up and down, so it is expected that the mortgage payments until the old will see a decrease Because of the interest cut.

Reduced returns

Nasr pointed out that investors in American bonds, sukuk, or deposits with banks in this category, returns on their investments decrease significantly, which makes them go to other more profitable investment vehicles, such as stocks, as they have become very suitable for investment, in light of their falling prices and low repetitions Profitability, which stimulates the market and helps it to rise.

Certificates of deposit

Certificates of deposit, issued by the central bank of banks operating in the country, are the monetary policy tool, through which the effects of changing interest rates are transferred to the country's banking system.

Sources:

Teller Report