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If you’re a resident of Dubai or Sharjah and intend to move house to the northern emirate of Ras Al Khaimah (RAK) in the belief that it is more economical there, you should know this.

According to international ratings agency Fitch, the emirate will witness an increase in inflation this and the next year due to rising rents and other costs.

“Inflation has picked up due to higher rents and is forecast to rise above the peer median, at 4 per cent in 2015 and 4.2 per cent in 2016,” Fitch said in a note.

Fitch says that the cost of living in RAK is moving up mainly due to higher rents.

Nevertheless, rental levels remain much lower than those in the emirates of Dubai and Sharjah – in fact, rents are nearly 2-3 times lower than the two emirates but rose around 5 per cent in each quarter last year.

According to a Q4 2014 report by real estate consultancy Asteco, average rents for studio apartments in Ras Al Khaimah is between Dh20,000 and Dh30,000 per annum, and one-bed units range between Dh25,000 and Dh40,000 annually.

In Dubai, one-bed units in the Arjaan master development are available from Dh35,000 to Dh45,000 per annum (pa) followed by International City, Dubai Investment Park and Remraam where rents range from Dh40,000 to Dh50,000 pa.

The inflation has been on the rise across the country. The UAE National Bureau of Statistics last month released the March consumer price data, showing annual inflation at its highest level since February 2009.

The inflation rose to 4.3 per cent in March 2015 as compared to 1.9 per cent in the same period last year.

Fitch expects the northern emirate’s real GDP growth to slow from around 6.5 per cent in 2014 to between 4 and 5 per cent over 2015 and 2016 owing to the slightly weaker external environment – in line with the overall slowing down of the economy.

It said prospects for real GDP growth are healthy as tourist arrivals were up sharply in 2014 due to new hotels opening and other sectors benefiting from the growth momentum in neighbouring Dubai and elsewhere in the GCC.

Ras Al Khaimah generally records a budget surplus, with the 2014 general government surplus widening to 3.4 per cent of GDP as revenues picked up and spending fell after the closure of the national airline in 2013.

A small deficit is expected in 2015 due to exceptional capital spending, which will boost capacity in the construction materials sector. A normalisation of capital spending is forecast to return the budget to surplus in 2016.

Its debt-to-GDP is less than half of the peer median, at around 20 per cent of GDP, and is forecast to stay around this level.

The emirate issued a $1 billion Sukuk in March 2015 which was used to extend the maturity profile, consolidate existing debts and pre-finance a 2016 maturity. Debt management has improved and government guarantees on state-owned enterprises SOE borrowing are being phased out gradually.

Fitch has affirmed Ras Al Khaimah's long-term foreign and local currency Issuer Default Rating (IDRs) at 'A' with Stable Outlooks.

RAK is the fourth-largest emirate in the UAE and its rating derives substantial support from this membership.

Fitch said sharp fall in oil prices has little direct impact on RAK's sovereign credit profile.