In line with the US Federal Reserve's move, the Central Bank of the UAE raised rate by 50 basis points to 2.25 per cent effective from Thursday. Twelve major central banks of emerging and developed markets raised interest rates in 2021 and initiated the same practice this year to contain inflation which surged multi-decade highs in US and other major economies of the world.

How will it impact consumers?

The interest rate hike will be reflected in equated monthly instalments (EMIs) on home, vehicle and other personal and corporate loans. Consumers will have to pay higher EMI's as higher rates will make it more expensive to buy a home or a car, or carry a credit-card balance.

How expensive will credit cards get?

Credit card holders, with a good credit history, will pay on average 18 per cent interest rate annually and it will go high in line with every hike in interest rates.

Will consumers pay more?

Consumers will feel the sting of the increase in prices and interest rates soon. Credit card users will eventually pay more on any revolving debt as a higher rate will reflect in their monthly statements within one or two monthly statement cycles.

How many rate hikes are likely to take place?

The US Fed has indicated that it plans to raise rates several times this year. Beginning in March, it is likely that Fed will increase rates five times in 2022 to reach its 1.75 percantage point target this year. The Fed plans to get interests rates back to about two per cent by 2024.

Will it benefit consumers?

The interest rate hike indirectly benefit the consumers as the banks will gradually increase profit rates on saving accounts and certificates of deposit.

How rate hikes contain inflation?

The interest rate increase will temper consumer and business spending that will help contain consumer prices. By curbing demsnd, prices should increase less quickly.

What is inflation target?

In most of the emerging economies, inflation increased to double-digit while in developed countries it surge as high as seven per cent. The US Fed wants inflation to be around two per cent annually from seven per cent at present now.

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