The writer is the Executive Advisor to the Board, Global Money Exchange, Muscat
BLURB: A tightening interest rate environment is a warning signal for borrowers to exercise greater financial discipline. Households should review their total outstanding loans, monthly instalments and other commitments, while maintaining emergency savings and avoiding unwanted borrowings.
The global interest rate landscape is turning increasingly challenging for borrowers. Following the US Feds 25-basis-point rate hike on September 16, 2026, several Central Banks have increased the repo rates.
Central banks across the Gulf, except Kuwait raised interest rates by 25 basis points, reflecting the region’s close monetary policy links with the US.
The Central Bank of Oman (CBO) has raised its repo rate by 25 basis points to 4.50 per cent. The move reflects Oman’s commitment to maintaining the stability of the Omani Rial, which is pegged to the US dollar. Aligning domestic interest rates, helps support financial stability, contain inflationary pressures and limit the risk of cross-border capital outflows.
India, too, has moved towards a tighter monetary policy, with the Reserve Bank of India (RBI) raising the repo rate by 25 basis points and shifting its policy stance from accommodative to “calibrated tightening”. Bank said, the future course of interest rates would depend on several factors, including domestic inflation, crude oil prices, currency movements, global interest rate trends and broader international economic developments.
When central banks raise policy rates, commercial banks may pass on higher funding costs to customers through increased lending rates. The extent and timing of this transmission depend on liquidity conditions among other things. Nevertheless, borrowers with floating-rate loans should prepare for possible increases in repayments.
A 25-basis-point hike may appear modest, but its cumulative impact can be significant. For instance, a home loan of RO 100,000 with a 20-year tenure would attract a monthly instalment of approximately RO 660 at an interest rate of 5 per cent. If the rate rises to 5.25 per cent, the monthly instalment would increase to around RO 674, and for the existing loans, the amount varies depending on the outstanding and the remaining tenure.
Similarly, in India, a ₹50-lakh home loan with a 25-year tenure could result in an additional monthly burden of approximately ₹826 if the interest rate rises by 25 basis points and the entire increase is passed on to the borrower.
However, for borrowers in Oman, the full extent of the rate hike may not necessarily be passed on, as past tightening cycles suggest that the impact of such moderate increases has been relatively limited.
Higher repayments could leave households with less money for education, healthcare, savings and other essential expenses. The pressure will be particularly severe for those managing multiple loans or lacking adequate savings or cash flows.
Borrowers with floating-rate home, vehicle and personal loans should review their repayment obligations. Delayed repayments can attract penalties, adversely affect their credit scores and, if irregularities persist, eventually lead to an account being classified as a non-performing asset (NPA). Timely repayment is therefore essential.
Higher interest rates will affect businesses dependent on bank finance, making term loans and working capital facilities more expensive. Higher financing costs will have pressure on profit margins, discourage investment and delay expansion plans. Businesses may pass on these additional costs to consumers through higher prices.
While a marginal rate hike is unlikely to alter an economy’s growth trajectory, a prolonged tightening cycle could dampen consumption, investment and overall economic activity. With further rate hikes possible in the short to medium term, borrowers should prepare for rising borrowing costs, higher EMIs and mounting financial pressure.
On the other hand, rising interest rates may also create opportunities for depositors. Banks could increase fixed deposit rates to attract funds, benefiting pensioners, senior citizens and others dependent on interest income. Similarly, fixed-income instruments may also offer higher returns as interest rates rise, creating better opportunities for investors seeking stable income
However, revised rates are generally applicable to fresh deposits and renewals rather than automatically extending to existing deposits. Depositors should compare available rates and consider their liquidity requirements before committing funds for longer periods as further hikes are expected..
A tightening interest rate environment is a warning signal for borrowers to exercise greater financial discipline. Households should review their total outstanding loans, monthly instalments and other commitments, while maintaining emergency savings and avoiding unwanted borrowings.
For expatriates in Oman and elsewhere, managing financial commitments across both their host and home countries requires careful planning. Currency fluctuations, family expenses and loan repayments in multiple countries can add to financial pressure, making prudent budgeting and effective financial management essential.
With inflationary pressures persisting in the US, the Federal Reserve may raise interest rates again. Therefore, considering the global scenario, borrowers must prepare for potentially higher borrowing costs, as generally, central banks across the world gives priority to control inflation over economic growth.
Amid global uncertainty, prudent borrowing, timely repayments and disciplined cash-flow management are essential. Ultimately, financial prudence remains the best defence against rising interest rates and mounting debt burdens.
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