This was originally published by Alvarez & Marsal.
The Fed raised rates by 25bps on 16 September to 3.75–4.00%, its first increase since 2023, and more are likely. The vote was unanimous, and the median projection points to one more hike this year. In a break from precedent, the Fed is hiking in response to energy-driven inflation it would normally look through, a sign that officials now worry prolonged high energy prices will feed into broader inflation.
Pegged central banks have followed. The UAE, Saudi Arabia, Qatar and Bahrain have raised rates, and SAIBOR and EIBOR have repriced accordingly.
1. Floating-rate borrowers are exposed again
Leasing companies and NBFIs funded on SAIBOR/EIBOR-linked debt face margin compression where their own lending is fixed-rate. Developers face higher interest costs against project cash flows that haven’t moved. Both come as liquidity was already an ongoing boardroom discussion. Until recently, the market debate was when cuts would come. Now it is how much rates could rise. That changes the refinancing math on 2027 and 2028 maturities.
2. The issuance window argues for moving now
With 16 of 18 Fed participants expecting at least one more increase this year (12 seeing 25bps, four seeing 50bps), issuers weighing sukuk or private placements should look to lock in fixed-rate funding before year-end. For maturities falling in early 2027, refinancing should be on the agenda now, with pricing and cash flow coverage the key tests.
3. More private credit, at a higher price
Higher deposit costs on top of stretched loan-to-deposit ratios in several markets will make banks more selective. That pushes mid-market borrowers towards private credit, structured equity and private placements. Private credit lenders were already pricing in a premium for geopolitical and energy risk. This hike validates that premium, and they will reprice to stay ahead of the base rate. Access improves and cost rises at the same time.
4. Exporters and importers feel this differently
This hike responds to higher energy prices. That gives Gulf exporters some fiscal support, while energy importers face higher funding and import costs, particularly where borrowers also carry dollar debt. Expect wider frontier spreads and more pressure on those borrowers to address upcoming maturities.
