AMMAN — The
Central Bank of Jordan (CBJ)
Thursday decided to raise the interest rate on its monetary policy instruments
by 75 basis points, effective as of Sunday. A move that was met with varying
opinions by economic experts.
اضافة اعلان
The
CBJ open market operations committee’s decision was taken in line with the
regional and international monetary markets' interest rates changes, to address
the anticipated inflation pressures amid the rising global inflation rates, the
bank was quoted by the Jordan News Agency, Petra, as saying.
While some experts told
Jordan
News that the decision is in line with the bank's policy of strengthening
the foundations of monetary stability and maintaining the attractiveness of the
Jordanian dinar, others claimed that it will negatively affect Jordan’s
economic growth by decreasing investment.
Economic adviser and former
president of the Banks Association
Adli Kandah told
Jordan News that "CBJ
was forced to increase the interest rate because the dinar is pegged to the
dollar".
He added that "the US Federal
Reserve raised interest rates, and CBJ had to do the same to maintain exchange
compatibility, and preserve the value of the dinar".
He also said that the hike in interest
rate will impact the economic activity, stressing that CBJ should come up with incentive
programs that would enable the economy.
"There is a JD700 million liquidity
at the central bank to support small- and medium-sized companies with low
interest, and that is fixed and will not change. In order to revive the
economy, owners of companies and projects must benefit from these programs,"
Kandah said.
Tarek Hijazi, managing director of
the Jordanian Businessmen Association, said that interest rates
"constitute a major obstacle to attracting investors".
Despite this, "I agree with the
decision, taken to maintain the exchange rate of the Jordanian dinar, which may
be affected in the long run, as the purchasing power will weaken", Hijazi
told
Jordan News.
He stressed the importance of
encouraging citizens to invest, especially as there "will be an easing of the
trend to consume and spend".
"Mega-projects must be
established to provide job opportunities and contribute to improving and
reviving the economy, and raising growth rates, especially since higher
interest rates also mean higher indebtedness," he added.
Economist
Zyan Zawaneh told
Jordan
News that "it is difficult to defend continued high interest rates".
"The high inflation rate that
Jordan has been witnessing for months is imported, the result of the global
economic and political crises. Therefore, raising the interest rate will not
solve the problem," he said, adding that "only the countries that
caused the high rate of inflation, such as US and Europe, can tackle it."
Demonstrating the extent to which
small- and medium-sized companies benefit from the incentive programs provided
by CBJ could help measure the impact of these programs on the Jordanian economy
and the extent of its contribution to its recovery, he said.
The increase in the interest rate will
eventually weaken the recovery started at the end of the COVID-19 pandemic, “that
is why the central bank, in cooperation with the government and the private
sector, must find real solutions to revive the economy", Zawaneh said.
Former minister of finance,
Ezz Al-Deen Al-Kanakreyye told
Jordan News that “Jordan, like any other
country in the world, is directly or indirectly affected by global economic and
political changes, including the rise in global prices of crude oil, and the four
consecutive US Federal Bank increases in interest rates, the most recent at the
end of last week, a 75 basis points increase, which led most central banks in
the world, including Jordan’s, to follow suit to protect the exchange rates of
their currencies and to maintain monetary stability".
These changes, he added "affect
the national economy in terms of economic growth, investment, unemployment, and
there is fear among many that the effects of these challenges will continue, so
it is necessary to strengthen the programs in force, both economic and social,
and launch new urgent programs, projects, and procedures to reduce their
effects, especially on the low-income earners and small investors".
The increase in interest on deposits
make people tend to increase savings, at the expense of investment, unless they
find that “there is a project that achieves a return that exceeds the return on
savings”, he added.
"Therefore, there is no room
for increasing investment except by enabling the economic sectors to reduce
their costs so that they can achieve a return that exceeds the return on saving
and the cost of financing by borrowing," Kanakreyye said.
The decline in the exchange rate of
the euro against the dollar affects many economic aspects; it increases the
cost of exports to Europe, and decreases the cost of imports from
Europe and the
cost of some imported material and production inputs, he said, adding that the
more the volume of export grows and efforts are exerted to reduce the cost of
economic sectors, especially tourism, the more the economy grows.
Kanakreyye also said that
"there is no doubt that qualified Jordanian cadres will have a large share
in the employment required by the Gulf countries to implement their projects.
We have begun to notice the high demand for Jordanian labor to work in the Gulf
countries in various sectors, including tourism".
According to Kanakreyye, Jordanian
companies compete for bids and projects in other countries, and many Jordanian
companies and banks have established “successful activities and projects” abroad.
"It remains to always emphasize
that whatever the challenges, there are opportunities and areas that can be
strengthened in a way that enhances the needed economic growth," he
concluded.
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