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Rates rise has come too late to curb inflation

Difficult times lie ahead for those already struggling with the cost of living

The cost of food has already been rising in the Middle East Creative Commons
The cost of food has already been rising in the Middle East

In real terms the GCC-wide interest rate rise means that anyone carrying any debt – whether a mortgage, loan or credit card – can expect to see an increase in repayments.

Unless your mortgage is at a fixed rate your monthly payments will be going up, and the same with all loans. Credit card companies will be increasing their already high rates of interest.

An increase in rates is supposed to put downward pressure on inflation but we have already seen a significant rise in the cost of living across the GCC, in food prices, in petrol prices and noticeable increases in rents.

We know that regional personal debt levels are relatively high so with the cost-of-living increases and salary stagnancy, we are going to see a significant number of people really struggling.

Many employees won’t see an annual salary increase, and even if they do, it is likely that few will match the true cost of inflation.

People in debt may end up in even more debt and so continues the vicious cycle of being unable to escape it.  

The idea behind an increase in rates is to put a lid on inflation, but it seems to be too late for that.

We have all seen the price increases over the past few months and those with debts will feel it harder now. 

While property prices have increased this move may also cause a slowdown in the market as potential buyers see the cost of paying a mortgage go up.

The flip side is that the interest payable on savings should increase, but this is usually less than the uplift in rates paid on debt and few expats keep large amounts of savings in the GCC.

Keren Bobker is an international financial advisor and senior partner at Holborn Assets. She is also author of financialuae.com

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