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Effects of CBJ rate hike unclear say experts

interest rates
The Central Bank of Jordan’s 50-basis point rate hike goes into effect on Sunday. (Photo: Shutterstock)
AMMAN —  Experts believe that the recent interest hike by the Central Bank of Jordan (CBJ) by 50 basis points will hurt borrowers and investment opportunities, while others believe that it is the right decision to protect the local currency.اضافة اعلان

The central bank’s decision, which goes in effect from Sunday, follows in the footsteps of the US Federal Reserve, which raised interest rates by a historical 75 basis points.

Earlier this year, the CBJ raised interest rates by 25 basis points in March and 50 basis points in May in response to a similar decision by the US.

According to Tariq Hijazi, president of the Jordanian Businessmen Association, there is no actual price inflation as a result of increased demand, so the CBJ used the incorrect tool in dealing with the Federal Reserve’s decision. He went on to say that the inflation is caused by the high cost of production inputs around the world, as well as rising oil prices, shipping costs, and supply chain issues.

However, he said that in order to keep the Jordanian dinar attractive, the CBJ must continue with the global approach, “but its decision was exaggerated, and it was assumed that raising the interest rate by only 25 basis point would be enough”.

Hijazi emphasized that “rising interest rates are the greatest enemy of investments, which cannot occur in the face of the high costs of financing for any project.” He added that the decision’s impact on the economy will be felt this year.

He said that the association is in contact with businesspeople and investors abroad, and that there is a possibility that fresh investments coming into Jordan will have a positive effect on the current economic slowdown.

The CBJ’s spokesperson, Mohammad Amayreh, told Jordan News that “there is no need to be concerned about the latest interest rate hike.” He explained that a number of measures have been taken in relation to the CBJ’s financing programs, where interest rates have been fixed. He said these programs “target vital sectors and small and medium enterprises, and thus the potential negative impact on them has been greatly reduced.”

For individuals, he noted that the CBJ had asked commercial banks to fix the value of monthly installments on borrowers and to reflect the recent increase “by moving its percentage to the end of the loan’s life”.
rising interest rates are the greatest enemy of investments, which cannot occur in the face of the high costs of financing for any project.
According to Amayreh, the Jordanian dinar deposit window was lifted by 75 basis points, which is reflected on the deposit side, boosting deposits in the banking sector, which are utilized to support the economy. He went on to say that “50 basis points were lifted on the rest of the monetary tools in order to reduce the burdens and costs of raising it on borrowers.”

He stressed that hiking the interest rate is intended to manage predicted inflationary pressures, particularly when global inflation rates are constantly and rapidly growing, and Jordan is not immune to this trend.

Amayreh stressed that the CBJ monitors the domestic, regional, and global economic, financial, and monetary events in order to take measures to improve monetary stability, strength, and attractiveness of the Jordanian dinar.

For his part, Jordan Banks Association Director-General Maher Al-Mahrouq praised the CBJ’s decision. He told Jordan News that “if the Jordanian monetary authority does not act to maintain monetary stability, maintain inflation levels, and achieve acceptable economic growth rates, the purchasing power of the Jordanian dinar will be greatly affected, and thus citizens will be affected.”

He explained that while raising interest rates will undoubtedly have a negative impact, the CBJ chose the trade-off that is the “least harmful to citizens”. He added that if the central bank had ignored the US’ interest rate hike, there would have been an increase in demand for financing, and because financing costs are low, inflation would rise further, reducing the purchasing power of the dinar. People would have fled to the dollar, putting the Jordanian dinar in jeopardy.
50 basis points were lifted on the rest of the monetary tools in order to reduce the burdens and costs of raising it on borrowers.
He also discussed how, unlike other central banks, the CBJ did not follow the Federal Reserve’s example exactly, but instead took measures appropriate for Jordan’s economic situation, raising the interest rate by 50 basis points rather than 75 basis points on most monetary policy tools. He also praised the CBJ’s procedures for fixing interest rates on its financing programs, as well as the circular issued on Thursday to all commercial banks to meet the same monthly installment amount from individual borrowers and to postpone the recent increases due to interest rate hikes until the end of loan’s life.

Economist Mahmoud Heilat has a different opinion. He told Jordan News that the CBJ’s decision will raise investment costs and will be reflected “immediately” on the installments paid by borrowers. He explained that this means “an erosion of citizens’ incomes and a decline in purchasing power”. By postponing installments, the deferred installment is added to the principal of the loan — banks charge interest on the amounts deferred for the duration of the loan.

, while the disaster also lies in the consequences of postponing installments, which appears to help borrowers, but the deferred installment is added to the principal of the loan, and banks charge interest on the amounts deferred for the duration of the loan.”

Heilat added that banks are making huge profits as a result, and this raises the critical question of the role that bank profits play in the Jordanian economy. “So the question is what is the percentage of non-Jordanians’ ownership in Jordanian banks and will these profits be recycled or invested in Jordan?” he concluded.


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