Jordan's stable monetary policy: $18B reserves, 2.1% inflation in 2023

Central Bank of Jordan CBJ
Central Bank of Jordan. (File photo: Jordan News)
AMMAN – On Tuesday, the Financial and Economic Committee at the Jordanian Senate, chaired by Dr. Rajai Muasher, met with the Governor of the Central Bank of Jordan (CBJ), Dr. Adel Al-Sharkas, to discuss the Kingdom’s monetary policy, Al-Ghad reported.اضافة اعلان

Dr. Muasher stated that this meeting builds upon previous discussions, aiming to review monetary policies, the CBJ’s efforts in maintaining monetary stability, and understanding the impact of the Gaza war on economic sectors and bank reserves.

In response, Sharkas emphasized that preserving monetary stability is the primary goal and top priority for the CBJ. He highlighted that recent decisions to raise interest rates on monetary policy instruments were made to uphold this objective and mitigate inflationary pressures.

Despite global economic challenges and regional uncertainties, the Central Bank’s measures have proven effective. The continued decline in the dollarization rate, which reached 18.0 percent at the end of November last year after previously exceeding 20 percent before the COVID-19 pandemic, indicates that demand for the Jordanian dinar has increased.

Sharkas confirmed that foreign reserves are currently at comfortable and reassuring levels, amounting to $18 billion, sufficient to cover 7.8 months of the kingdom’s imports of goods and services. He also noted that the inflation rate was 2.1 percent during the past year, compared to inflation exceeding 4 percent in 2022, making it one of the lowest inflation rates in the region and the world.

Despite the CBJ raising interest rates by 5.25 basis points since the end of March 2022, the average lending and borrowing rates increased by only 216 basis points, representing just 41.1 percent of the total rate hikes implemented by the bank. This indicates that commercial banks did not fully pass on the rate increases set by the CBJ.

The average expected increase in interest rates on term deposits was 248 basis points, constituting 47.2 percent of the total rate hikes. Notably, the interest rate spread between loans and term deposits stood at 3.06 percent until the end of November, the lowest level in 26 years.

Sharkas commended the vital role of the banking sector in the national economy. Annual bank facilities increased by approximately JD997 million, reaching JD33.4 billion by the end of November. Additionally, bank deposits rose by JD1.2 billion, reaching JD43.3 billion, reflecting confidence in the banking sector.

He affirmed that the banking sector in the Kingdom is sound and stable, with substantial capital and liquidity buffers to withstand shocks.

The local economic landscape witnessed several achievements and gains in 2023, notably advancing the financial and structural reform agenda through the successful completion of the sixth and seventh reviews of the economic reform program with the International Monetary Fund (IMF).

Sharkas considered this an accomplishment for the government, emphasizing commitment and seriousness in implementing economic reforms that paved the way for a new economic program with the IMF, ensuring continuity in the economic reform agenda without interruption.

He stated that the stable credit outlook for Jordan was a key highlight agreed upon by credit rating institutions during 2023. Furthermore, removing Jordan from the list of countries under surveillance in the field of anti-money laundering and terrorism financing in 2023 will enhance international confidence in the Jordanian economy and its commitment to legislative and international agreements.

Several indicators demonstrated positive performance during 2023, with tourism income leading the way. The economy recorded a growth rate of 2.7 percent during the first three quarters of 2023, and it is expected to achieve similar growth for the entire year.

Sharkas emphasized that the impact of the Gaza war had limited effects on economic activity in 2023. The repercussions in 2024 will depend on the duration and extent of the crisis. He affirmed that the national economy possesses the experience and tools to navigate this crisis and emerge with minimal costs.

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