(MENAFN- Alghad Newspaper)
Last Tuesday, the Central Bank of Jordan (CBJ) decided to raise interest rates by 0.5 per cent, on the average, with the rate for refinancing SMEs in five sectors maintained, in order to facilitate and encourage growth in these sectors.
Just two months ago, almost, the bank raised interest rates by 0.25 per cent last December.
However, unlike most of the other times CBJ raised the rates, this time, it wasn't a response to the US Federal Reserve's decision to increase interest on the Dollar, no.
This time, it was for pure domestic reasons that the Central Bank has decided to venture with this decision.
Mindfully, this isn't a small raise, and in the months to come, interest rates are expected to hike further as estimates forecast the US Reserve is going to up their interests too. Meaning that we would have to raise our interest rates accordingly, which increases the costs of borrowing money domestically.
Before anything else, it seems that the CBJ's decision is more or less precautionary, intended to protect the national currency from the implications of the recently upheld financial decisions and polices, including price hikes, tax-ups, and a general rise in payables to the Treasury, eventually driving up inflation.
Right now, the Central Bank is thoroughly exploring possible implications of these decisions on future money value and annual inflation.
In a press release issued by the Bank two days ago, CBJ said they will keep a close eye on even the minutest economic developments; domestic, regional, and global, in order to set up a bundle of fiscal measures and banking policies which would reinforce monetary and sector stability, whilst working towards the establishment of an encouraging environment for domestic and foreign investment and business, to advance national economy and attain a suitable growth rate!
For Dr Ziyad Freiz, Governor of the CBJ, it is crucial that the Jordanian Dinar remains an attractive savings instrument, to increase deposits in local currency (now at roughly JOD32 billion) or at least retain its current levels in the worst case scenario.
Is the Central Bank of Jordan worried?
Reasonably, it would be unwise of the Bank to not be worried and dismiss even the smallest details which can affect our monetary and fiscal stability, especially under the circumstance.
CBJ needs to be a little worried, which is the right amount of worry we need to keep it all together; too loose, and the Dinar will collapse; too uptight, and the economy will crash!
However, given the size of the Central bank's reserves in foreign currency, over USD12 billion by February, 2017, it would seem we are good for the next seven months, at least, which is great; we've got nothing to worry about.
Likewise, it would reassure us all to know that there are sufficient inflows of foreign currency. For example, since January, 2017, inbound tourism has grown by 12.2 per cent.
The only receding index in terms of sources for foreign currency is inbound remittance, which has gone down by 2 per cent, and is expected to go further down in the days to come, for reasons related to the Arab Gulf labour market and the fact that some Jordanians have lost their jobs there.
That, and the rise of uncertainty among expats, discourages Jordanians overseas from wiring their savings.
To monetary policy makers, the increase in interest rates supports stability. Meanwhile, to economists, it reflects negatively on many segments of society; foremost is the individual borrower.
The cost of borrowing money will increase, for real-estate and consumptive loans alike, which will make it difficult for borrowers to pay off their loans.
Of course, this is next to all the other implications of rigging up taxes and customs.
To sum it all up, the Central Bank is not overly worried about fiscal and monetary stability; the Jordanian Dinar is in quite a comfortable place.
Nonetheless, precautionary measure is necessary, so long as it serves its purpose.
Despite the limited but negative effects of increasing interest rates, this measure is still designed to preserve and advance a grander economic purpose; stability.
This article is an edited translation from the Arabic version, published by AlGhad.
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