Borrowers will feel the effect of CBJ’s hike of interest rate

(File photo: Jordan News)
AMMAN — Economic expert and professor at the University of Jordan, Raad Al-Tal, stated that any rise in the interest rate by the Central Bank of Jordan (CBJ) only affects the monetary policy tools, including the interest rate on discount window (the interest rate that the central bank gives to commercial banks), the main interest rate (on deposits), and the interest rate on the overnight window, according to Ammon News. اضافة اعلان

Tal added that the required reserve ratio is another important tool but is usually not affected by the rate increase and it depends on the CBJ’s estimations, adding the higher the central bank hikes the interest rate, the more it will affect interest rates on current and new loans, either in currencies dominated by the CBJ main currency or those linked to it.

According to Tal in the case of the US dollar, the lending cost began to increase as of Friday, affecting customers directly. However, this is a negative indicator for economies that aim to rejuvenate the market by imposing low interest rates, and this increase would reduce the credit facilitation requests, especially those done in the US dollar and currencies linked to it. 

He also pointed out that the CBJ is in a similar position to other countries whose currencies are linked to the US dollar. It raises the interest rate on the monetary policy tools in order to maintain the value of the Jordanian dinar and its stability against the US dollar. It is worth mentioning that the Jordanian dinar has been pegged to the US dollar since 1995.

Meanwhile, financial and banking expert Mazen Omari said that the installments on monthly loans are likely to rise by 12 percent by the end of the year, according to a local media outlet.

He added that the CBJ may have to increase interest rates two or three times this year in line with the US Federal Reserve’s own estimations that the interest rate might be affected by a six-time increase in 2022.

Omari indicated that the decision made earlier by the Open Market Operations Committee of the CBJ to raise interest rates by 25 basis points in March aimed at maintaining the monetary stability, enhancing economic development, and creating jobs. This could be considered a justification for the rise in interest rate if it does in fact actualize into enhancing economic development and creation of jobs within 50 days.

Omari pointed out that it will be citizens who will be most affected by this increase. He indicated that banks will be raising interest rates on borrowers, stressing that people will feel the impact of the increase by the end of May.

This leaves people with two options: increase their monthly installments or postpone paying the increase amount until the end of the loan’s term. Although Omari warned that the second option does have more consequences than the first one.

Meanwhile, financial expert and economic analyst Zayan Zawana said that central banks alone do not create an economy, stressing that last week’s decision by the US central bank, the Federal Reserve, to raise the interest rate by half-percentage point and the statements of its president confused the markets, investors, countries and their central banks, Jo24 reported.

Zouana concluded by saying that the reality today in Jordan requires that there be cooperation between the two institutions; the government and the CBJ, with concerted effort to align their fiscal and monetary policies, otherwise the crisis will worsen and we will not get out of the cycle of debt and deficit.

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