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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