How Fed cuts will shape Gulf spending, from credit cards to corporate debt

Property, construction, retail, automotive, tourism and hospitality may benefit from lower interest rates, analysts say

The US interest rate cut on Wednesday means lower borrowing costs, more disposable income and a boost to spending across the US dollar-pegged economies in the Gulf and the Middle East.

Sectors such as property, construction, retail, automotive, tourism and hospitality are expected to benefit, as consumer confidence and discretionary spending improve, analysts say.

However, the scale of the trickledown effect from the rate cuts will vary, depending on fiscal buffers and the fundamental strength of respective economies in the region.

“For consumers, a rate cut recalibrates financial behaviour by altering incentives for saving and spending,” Daniel Takieddine, co-founder and chief executive of Sky Links Capital Group, said.

“With returns on savings accounts diminished, the impetus to save weakens, while lower borrowing costs for mortgages, auto loans and personal credit make spending more attractive."

The shift is expected to drive consumption and boost spending, especially on big-ticket items such as cars and homes and will also improve consumer sentiment.

“Feeling more optimistic about the economy and their personal finances, households are more likely to increase discretionary spending,” Mr Takieddine added.

“For those with existing variable-The US Federal Reserve entering a new cycle of interest rate cuts has direct implications for most Gulf economies as well as for Jordan whose currencies are tied to the US dollar. Their central banks typically mirror the Fed's moves in their monetary policy stance.

The Fed cut US interest rates by 25 basis points on Wednesday amid concerns over the strength of the labour market in the world's largest economy. The rate-setting Federal Open Market Committee has lowered the benchmark rate to a range of 4 per cent to 4.25 per cent.

The Fed's quarter-point rate cut, the first since President Donald Trump resumed office in January, was widely expected by markets, traders and investors.

The UAE Central Bank, which follows Fed decisions, also reduced rates by 25 basis points after the announcement. The banking regulator said it would cut the base rate applied to its overnight deposit window by 25 basis points to 4.15 per cent, from 4.40, effective from Thursday.

Analysts say lower interest rates tend to stimulate economic activity, as consumers and companies can borrow at lower rates for purchases and investment, which drives consumption and economic growth.

New forecasts released by the Fed showed the central bank projects to cut rates by another 50 basis points this year, which would lower the federal funds rate to about 3.6 per cent in December.

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Upbeat consumer sentiment

A drop in policy rates in the Gulf is a boon for consumers whose credit card debt and personal loans would carry lower interest.

Vijay Valecha, chief investment officer at Century Financial, said it will not only free up cash but it also means cheaper mortgage rates, which would encourage people to buy homes.

Demand for residential and commercial properties is set to increase, which is a good sign for the property market, said Shivam Dubey, associate partner of mortgage advisory at Youae Mortgages.

The market could experience increased activity and the “heightened demand could support property prices and stimulate overall market growth”, he said.

Because lower interest rates may discourage traditional saving, some homeowners may invest in renovations that enhance their property's value, he added.

For developers, lower global and regional borrowing costs reduce the financial burden of project financing and refinancing, according to a report by ValuStrat.

Cheaper debt makes it easier to service existing loans, fund new construction and explore redevelopment projects.

"Developers with strong balance sheets will be best positioned to take advantage of this environment, especially in prime locations where demand is resilient," the report said. "However, while financing costs may ease, underlying fundamentals such as oversupply and demand shifts still determine project viability."

The retail sector is expected to be the biggest beneficiary of a rate cut and subsequent rise in consumption as customer confidence grows.

Spending on durable goods, cars and luxury items is set to rise as lower loan servicing costs free up cash, Hamza Dweik, head of trading for Middle East and North Africa at Saxo Bank, said.

In Jordan, where household debt levels are more sensitive to interest rate changes, a Fed cut may offer “meaningful relief”, improve consumer sentiment and boost domestic consumption, he added.

Improved investment opportunities

Lower interest rates not only bring relief for households, they also ease financial pressure on governments and the corporate sector, analysts say.

The move will stimulate state investments, especially in non-oil sectors, and support governments' fiscal expansion efforts.

For businesses in the Gulf, lower interest rates would help companies gain easier access to capital, potentially reigniting momentum in property and infrastructure development, Mr Dweik said.

Banks may record a “slight compression” in net interest margins but this may be offset by higher lending volumes and better asset quality, he added.

“Investment flows might shift away from fixed-income instruments towards equities and real estate, as lower rates reduce returns on traditional savings,” Mr Dweik added.

Deposit rates would also probably fall, encouraging people to explore alternative asset classes, including stocks and cryptocurrencies, he said.

'Tailwind' for Gulf economies

From a macroeconomic perspective, the rate cut is a positive development for the UAE as well its peers in the Gulf, according to analysts.

The strong gross domestic product and foreign reserves of the UAE, the Arab world's second largest economy, mean the country has “ample capacity to absorb and transmit the benefits of easier financial conditions”, Mr Valecha said.

In the Gulf, central banks collectively hold more than $760 billion in foreign assets, providing substantial external buffers, which means lower policy rates can effectively reduce sovereign and corporate refinancing costs, and support diversification programmes such as Saudi Vision 2030 and the UAE’s industrial sector growth strategy, he added.

While Jordan will benefit from the rate cut, it faces fundamental constraints because of its high public debt ratio of nearly 117 per cent of GDP.

“Fiscal pressures and elevated debt servicing mean less room for government spending to complement monetary easing,” Mr Valecha said.

“Nonetheless, households and small businesses would benefit from lower borrowing costs on loans and mortgages, easing financial stress in an economy where private consumption makes up more than 80 per cent of GDP.”

Jordan will have “modest relief” compared to Gulf countries but that is still important for sustaining domestic demand.

“Overall, a Fed cut would act as a tailwind, lifting growth, confidence, and investment across the UAE and GCC, while offering Jordan a measure of relief against tighter fiscal realities,” Mr Valecha said.

Inflation growth in the region, particularly in the UAE, has also remained muted in past several quarters, which also encourages higher consumer spending.

Inflation in the UAE stood at 1.4 per cent in the first quarter of 2025 and the central bank has slightly revised down its inflation forecast for 2025 to 1.9 per cent from 2 per cent.

The CBUAE has also lowered its inflation estimate for 2026 to 1.9 per cent from 2.1 per cent.

“The inflation trend in the region has been benign, with interest rates higher than required,” Monica Malik, chief economist at Abu Dhabi Commercial Bank, said.

“As such, the expected rate cuts will be positive for sentiment, consumption activity and credit demand. The lower rates will also be welcome for the corporate segment,” she added.

The rate cut may help counteract “global disinflationary pressures and support domestic demand” without significantly stoking consumer prices in the Gulf region, Mr Dweik said.

“A weaker dollar, typically associated with Fed easing, might also support oil prices, benefiting GCC exporters,” he added. “However, volatility in energy markets remains a risk, especially as global demand patterns evolve.”

While the Fed rate cuts will have positive implications for the dollar-pegged economies of the region, it does raise questions about the syncing of business cycles in the US compared to the Gulf.

"Clearly fed cuts automatically translate into an easing of financial conditions in pegged economies, which is pro-growth and therefore good news for most sectors," Farouk Soussa, Mena economist at Goldman Sachs, said.

"But it does raise questions of whether a one size fits all monetary policy is appropriate if business cycles in the GCC and the US are out of sync."

An example of this is the housing sector, where valuations are rising steeply in the UAE, for example, and rents rising sharply in Saudi, he said.

"A cut in rates potentially inflates prices even more in these markets, which may not necessarily be welcome."