UAE Borrowers Brace for Slower Rate Cuts in 2026 as US Fed Turns Cautious

Cheaper loans may take time as global uncertainty tempers expectations

Dubai | January 2, 2026

For UAE residents hoping that 2026 would bring quick relief on mortgages and loans, the outlook is turning more cautious. Signals from the United States suggest that interest rate cuts could arrive slower than many borrowers expected, keeping monthly repayments only marginally lower in the near term.

Although the US Federal Reserve reduced rates three times in 2025, policymakers now appear divided on how aggressively to move further. The Fed’s benchmark rate stands at around 3.6%, its lowest level in nearly three years -but recent meeting minutes reveal hesitation rather than confidence.

Why the US Fed Is Slowing Down

Inside the Federal Reserve, opinions remain split. While inflation has eased to 2.7%, it is still above the long-term target of 2%. At the same time, US unemployment has climbed to 4.6%, its highest level in four years.

Some policymakers fear the job market may be weaker than official data suggests. Others worry that cutting rates too quickly could reignite inflation. As Fed Chair Jerome Powell explained, recent decisions were shaped by the need to balance cooling prices without destabilising employment.

This cautious stance matters directly for the UAE.

What It Means for UAE Borrowers

Because the UAE dirham is pegged to the US dollar, local interest rates tend to follow US policy closely. After the Fed’s move, the UAE Central Bank lowered its Base Rate from 3.90% to 3.65% in December, offering limited relief to borrowers.

EIBOR - the benchmark affecting mortgages and business loans - edged lower as well. For most borrowers, however, the change has only softened monthly payments slightly, rather than delivering meaningful savings.

This gradual adjustment affects not just homeowners, but also entrepreneurs and investors involved in business setup in Dubai, where financing costs play a key role in expansion and long-term planning.

How Many Rate Cuts Are Likely in 2026?

There is no clear consensus among US policymakers:

• 7 officials expect no rate cuts

• 4 officials expect one cut

• 8 officials expect two or more cuts

Early-2026 economic data will be decisive. If inflation continues to cool and hiring weakens, rate cuts could accelerate. If inflation proves stubborn, reductions may slow or pause altogether.

Impact on Property and Business Decisions

Property advisers say mixed expectations are already influencing buyer behaviour. Some potential homeowners are waiting for clearer signals before committing to mortgages, while others are moving ahead to secure property prices amid strong population growth in the UAE.

For businesses, slower rate cuts mean financing costs will ease  but gradually. Analysts say even one or two US cuts could still reduce loan burdens over time, especially for variable-rate borrowers.

Will Bigger Relief Come Later in the Year?

Market watchers believe the first half of 2026 will set the tone. If US inflation continues to decline, UAE borrowers may see more noticeable relief in the second half of the year. Until then, expectations remain measured.

The takeaway is simple: meaningful rate relief is possible - but patience will be required.

Key Takeaways for UAE Borrowers

• Expect small rate changes early in 2026

• Bigger cuts depend on US inflation and jobs data

• Mortgage holders benefit more if cuts accelerate later

• Businesses may see gradual improvement in financing costs

In short, borrowing costs in the UAE will move - but slowly. Watching US economic data will be just as important in 2026 as it has been over the past year.