UAE: Residents can expect cheaper loans as Central Bank likely to lower rates

Borrowers in the UAE and wider GCC are likely to witness cheaper loans in the second half of this year, as the central banks in the region are expected to lower their interest rates

This comes in the wake of widespread expectations of the US Federal Reserve lowering its benchmark interest rate twice this year. Thus far in 2025, the US central bank has held its Federal Funds rate at 4.25-4.5 per cent. The GCC central banks, except Kuwait, are expected to follow suit as their currencies are pegged to the US dollar.

In this scenario, it is possible that the UAE’s overnight deposit rate — currently fixed by the Central Bank of the UAE at 4.4 per cent, could fall by as much as 55 basis points to 3.85 per cent by the end of year, if the Fed proceeds as expected, analysts say. While this holds true across the rest of the GCC states, Kuwait is likely to drop its rate only by 25 basis points as its pegs the Kuwaiti dinar to a basket of currencies.

Expectations for rates cuts remain volatile with the current consensus estimates suggesting one to two cuts by the end of the year by the US Fed. “The uncertainty comes mainly from the changing policies of the US government related to the tariffs as well as wavering confidence in the US economy and the greenback. Treasury bond auctions post the tariff announcements have garnered tepid demand, although the demand for auctions in July-2025 calmed these fears. In addition, the US dollar has seen significant declines this year against a basket of currencies and especially against the Euro. This would further influence investor decision regarding whether to go for local currency bonds,” Junaid Ansari, head of investment strategy and research at Kamco Invest, said.

The lower rates would impact the issuances of bonds/sukuk for the Gulf nations. The GCC is expected see a back end loaded issuance this year as against higher issuances during the start of last year. Fixed income issuers would focus on locking in lower rates as expectations for rate cuts gain pace by the end of the year as uncertainty related to tariffs see more clarity, analysts said. “Maturity refinancing is expected to come in at $21.7 billion during the remainder of the year while government deficit financing led by lower average oil prices would also contribute to the overall trend during the rest of the year and compensate for the decline in issuances during the first half of 2025,” Ansari said. 

Sukuk issuances are expected to gain traction during the second half of 2025 backed by demand from specific investors and funding diversification. Moreover, the announcement from the Kuwaiti government for the issuance of $6.0 Bn in bonds in the international market in the coming months would be further incremental to overall fixed income issuances from the region.

Overall, GCC governments are expected to see elevated levels of maturities over the next five years, especially for bond issuances during the years after the pandemic, data shows. 

According to data from Bloomberg, GCC sovereign maturities stands at $226.1 billion over the next five years (2025-2029), whereas corporate maturities stand at slightly lower at $223.0 billion. Both bond and sukuk maturities are expected to remain elevated starting from 2025 until 2029 and then gradually taper for the rest of the tenor. 

According to Kamco Invest, the higher maturities during the next five years reflects a number of short-term (less than 5-year maturity) issuances by governments and corporates. A majority of these maturities are denominated in US dollars at 59.3 per cent followed by local currency issuances in Saudi riyals and Qatari riyals at 16.9 per cent and 7.0 per cent, respectively. In addition, due to the credit rating profile of the GCC governments, a majority of these maturities are in the high investment grade or A rated instruments with maturities of $158.5 billion while maturities of investment grade instruments stood at 171.7 billion. 

In terms of type of instruments, conventional bonds dominate with $278.0 billion in maturities over the next five years, whereas sukuk maturities are expected to be at $171.0 billion. In terms of conventional bond maturities, corporate maturities stood at $144.3 billion, surpassing government bond maturities at $133.7 billion. In the sukuk market, government sukuk maturities stood at $92.4 billion vs. corporate sukuk maturities at $78.6 billion.

At the country level, Saudi Arabia continues to see the biggest fixed income maturities during 2025-2029. The kingdom is expected to see maturities of $166.0 billion until 2029 followed by UAE and Qatari issuers at $146.8 billion and $74.7 billion, respectively. 

In terms of sector maturities, banks and other financial services sector have $167.9 billion in maturities in the next five years, accounting for around 75.3 per cent of the total corporate maturities and 37.4 per cent of the total maturities in the GCC until 2029. Banks in UAE have the biggest maturities over the next five years at $65.5 billion followed by Qatari banks with maturities of $23.2 billion.

Banks in UAE and Qatar accounted for 39.8 per cent of total corporate maturities in the GCC and 19.8 per cent of total bonds/sukuk maturities over the next five years in the GCC. Other financial services and real estate sectors were next with maturities of $27.7 billion and $13.2 billion until 2029.

At the country level, there was a broad-based year-on-year decline in issuances during the year, barring marginal growth in issuances from the UAE and Bahrain. Aggregate issuances from the UAE stood at $32.9 billion in the first half of 2025 as compared to $31.7 billion in the first half of 2024, registering a gain of 3.8 per cent. On the other hand, issuances from Saudi Arabia, Oman and Qatar witnessed double-digit declines. 

Somshankar Bandyopadhyay

Somshankar Bandyopadhyay is a News Editor with close to three decades of experience. Currently, he manages the business section, ensuring that the top economic and business news of the day reaches its readers.