No talk about hiking interest rates in Jordan, yet

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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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