The repercussions of raising interest rates by 75 points on the national economy

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Al-Anbat -


Al - Anbat - Saba - Al - Sukkar 
Translated by - Neveen - Al - Jarrah 


In light of the decision of the Open Market Operations Committee of the Central Bank to raise interest rates on all monetary policy instruments by 75 basis points, in view of the growing external inflationary pressures and the resulting rise in interest rates prevailing in global financial markets, and the commitment of the Central Bank to strengthening the foundations of stability Cash and maintaining the attractiveness of the Jordanian dinar as a savings pot.


The committee's decision came from the Central Bank's keenness to provide financing on preferential and easy terms for the vital economic sectors.


Economist Hossam Ayesh commented in an exclusive interview with "Al - Anbat " on the committee’s decision by saying, "The central bank could have gone back again from raising interest rates, or raising interest rates in proportion to the requirements of the performance of the local economy, instead of raising 75 basis points that could Replacing it by raising the interest rate to 50 points, and not more than that, indicating that the aim of this is to maintain the dinar exchange rate because it remains an important strategic goal that must be worked on.


And he indicated, that the exaggeration in raising the interest margin between deposits and facilities, and the high interest rates in advance, exacerbates the problem of the rise in interest rates in the United States of America six months before starting to raise them, which was close to zero, and thus raising the interest now reaches 3.25%, while In Jordan, facilities for the best individual clients reach 8.50%, while ordinary clients bear 9-12% or more interest,noting that any additional cost exacerbates the problems related to repayment, or even obtaining new facilities and loans, explaining that the succession of raising interest rates in connection with raising interest rates in the United States is not new, and that the justifications provided for raising interest rates in the Kingdom; In order to maintain the attraction of deposits and face inflation, and others..., it does not seem in line with reality, explaining that the Corona pandemic has reduced interest rates to provide a greater opportunity for people to invest their deposits in the market, and that the need is still continuing until now.


He pointed out that Jordan needs more investments, and the development of new investment laws to attract investors, and therefore that the justification related to raising interest rates aims to increase deposits in dinar, and to confront inflation, which rose with every interest rate increase made by the Central Bank in line with what is happening with the US Federal Bank, Adding that costs are rising, and this has clear results, indicating that it is possible to control inflation at a certain stage, but it has not happened so far, noting that raising 75 basis points and its rise for three consecutive times, with the aim of stopping inflation to a certain level and then returning to normal levels needs time. Long, stressing that raising interest rates leads in the first stage to more inflation, and at a later stage to a decline in the national economy.


He added, that the goal of raising interest rates is a deflationary goal, with the aim of affecting spending rates, whether consumer or investment spending, reducing access to loans and raising their cost to borrowers or those wishing to borrow, and affecting wages and prices in the market, and then as a result of affecting rates. Economic growth and its decline, which directly affects the rate of per capita income from this output, affects unemployment rates, poverty rates, and all assumptions related to economic performance as stated in the state’s general budget.


He continued, that it affects the cost of exports (by raising the competitiveness of exports and raising their cost), and thus affects one of the most important sources of obtaining foreign currency, and may affect tourism revenues and that it rose due to the high price of the dollar, citing the example that European countries consider the cost of tourism to be high, which leads The decline in the number of tourists from Europe, indicating that these costs borne by the economy, are huge costs.


Ayesh explained that in the sense that "central banks have to make a trade-off between two things, either keeping inflation high with all the economic bubble that can lead to that may topple the economic performance completely, although this is unlikely for the local economy because it needs stimulus to return to levels before the need These are levels that require more activity, investment and different economic performance, which was not available as required.


He continued, that there are many countries that sacrifice a little in economic growth in order to curb inflation and prevent its negative effects on the economy, and this is what some countries are doing, but in fact we consider Jordan to be more recipients than being active in terms of interest rates and other things, so costs rise.He explained that the main problem we have, noting that the interest margin between interest on deposits and facilities is large to reach 4-6% and may exceed that in some cases. repayment up to approximately one year to three years; Because of what the Central Bank directed to the banks not to raise the interest rate directly on the installments borne by the borrowers, which may lead to a postponement and therefore will be costly in terms of time and additional costs borne by the borrower.


He added, that what was previously mentioned leads to a halt or a decline in the number of those who intend to obtain loans to buy apartments, cars or lands, etc..., which will directly affect the internal economic or commercial movement, adding that in returning to the topic of the external auction of deposit certificates, the The Central Bank used to issue these auctions, indicating that certificates of deposit are term deposits, a financial product sold by banks, savings institutions, credit companies, etc., and this is a kind of auction to collect money from the secondary market over a fixed and fixed period, and often The duration is from one to five months, explaining that it is a form of obtaining financing for various operations through these certificates.


Ayesh continued, that in all cases, these are different forms that the central bank, commercial banks and others resort to, where interest rates are known throughout the loan period, and therefore are not affected by the rise or fall in prices, and that they have a pre-defined period of time, with conditions related to how they are liquidated, which is supposed to That it be at the end of the period, otherwise there are agreed fines, or on the person who wants to obtain certificates of deposit or his money during these certificates before the prescribed period.


In the same context, the economic expert Wajdi Al-Makhamara confirmed to "Al - Anbat "that the central bank must reduce interest rates on the Jordanian dinar, and not follow any new hikes made by the Federal Reserve to maintain a margin between the interest rates of the dinar and the dollar to maintain the attractiveness of the dinar,Pointing out that the Central Bank must take a step not to raise interest rates, based on the current economic and political data and the decline in economic growth, and the decline in growth in all economic sectors, indicating that lowering the interest rate again will contribute to a positive impact on several economic sectors, and reduce the cost of Financing on projects dependent on bank financing, the cost of financing on individuals, reducing the volume of deposits, and directing part of the liquidity to the Amman Stock Exchange and the real estate sector, indicating that taking a decision not to reduce may currently be desirable for the Central Bank because it will maintain the interest rate margin between the dinar and the dollar, which is what it aspires to achieve. Currently central to maintain the attractiveness of the dinar.


It is worth noting that this is the fifth time that the Central Bank has raised interest rates to maintain the price of the dinar against the dollar, after it was raised by the US Federal Reserve as a result of inflation in the United States of America.
 
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