AMMAN — A
number of Jordanian economists have expressed concern that Jordan’s interest
rates will rise in response to expectations that the US Federal Reserve is
planning to raise interest rates on the dollar this year to deal with spiking
inflation.
اضافة اعلان
Economist Yousef
Damra told
Jordan News he believes that the Federal Reserve will raise
interest rates eight times over the next two years, and that while the Central
Bank of Jordan (CBJ) may not raise interest rates locally the first time, due
to the margin between the two currencies, it is possible to do so later. Since
the 1990s the Jordanian dinar has been pegged to the US dollar to maintain its
stability.
Damra went on to
say that interest rates in Jordan do not always rise at the same pace as those
in the US, and that, instead, “a Jordanian monetary policymaker may be content
with raising only half the value”.
Damra added that
there is a “margin” between the dinar and the dollar that ranges between 2
percent and 2.5 percent, and this is important because it maintains the
strength of the Jordanian dinar vis-à-vis other currencies.
He said that
based on current data, inflation levels in America and other countries around
the world are very high, and that is why economists expect interest rates to be
raised, to control inflation: “Jordan has been able to maintain a moderate
inflation margin of less than 1.5 percent to 2 percent.”
Damra emphasized
that it is up to the US monetary policymaker to choose the appropriate action,
but the CBJ will not necessarily adhere to that decision immediately.
Banker Abdulaziz
Sadaqah said that if the decision to raise interest rates is taken, it will not
be in the interest of the local economy, which “needs to reduce interest rates
and provide liquidity”, especially as the country begins to recover from the
effects of the pandemic.
Sadaqah added
that raising the interest rates “will have a profound impact and will worsen
the economic situation because it will encourage investors to keep their money
in banks instead of investing them in projects”.
This, he added,
“will freeze available liquidity that the economy needs to drive growth, which
will deepen the financial burdens on borrowers”, be they individuals or
companies, and will lead to dispensing with employees in many companies or
reduce employment opportunities and increase the unemployment rate.
He said that
raising interest rates will increase the cost of borrowing, making investment
useless, and negatively affect investment in the financial market, which needs
liquidity to get activated.
Sadaqah stressed
the need for a shift in the economic approach by searching for alternative
sources to increase public revenues and re-inject funds into the economy. These
alternatives include imposing a tax on wealth, and “thinking about
unconventional political and economic solutions to get out of the current
situation to accelerate growth”.
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