jordan pulse -

Issam Kadmani
Central banks around the world raise interest rates when inflation rises and lower them when the opposite happens.

Raising is called a tight policy to curb inflation and reducing is called a flexible policy to stimulate economic activity and drive growth.



In the Jordanian case, the Central Bank follows the decisions of the US Federal Reserve because the dinar exchange rate is linked to the dollar exchange rate, but that does not mean that the Jordanian Central Bank has flexibility, which sometimes makes it ignore the decisions of the US Federal Reserve, provided that it is confident about inflation rates, but with caution, meaning that inflation is mostly for Jordan. Imported because local prices for goods and petroleum in particular are affected by international prices, as most of them are imported, and not only that, fluctuations and disturbances also have a role, just as Jordan is not immune to being affected by global inflation rates.

The International Monetary Fund's forecasts say that the world is beginning to escape peak inflation rates, which means that the time will be appropriate to reduce interest rates to stimulate growth, which has been characterized by a slowdown. It is expected that global overall inflation will decrease from an average of 6.8% last year to 5.9% in the current year and 4. 5% next year, with advanced economies returning to their inflation targets sooner than emerging market and developing economies.

The Governor of the Central Bank of Jordan, Adel Sharkas, previously gave early indications of these expectations, saying: Global indicators indicate that the cycle of monetary tightening has ended.

He expected to begin reducing interest rates globally, starting from the second quarter of the current year, by 25 basis points on a quarterly basis.



We do not expect interest rates to be reduced as quickly or to the same extent as they were raised, as caution will remain the dominant position as long as the stability of the global economy is still at stake in light of the continued escalation of trade, economic and political tensions between the major economies.

The Central Bank of Jordan raised interest rates on its monetary policy tools 7 times, by 400 basis points, and 425 basis points on the one-night deposit window immediately after the outbreak of global inflation, and I think it will take a longer time to restore interest rates to what they were before the start of the hike, which will extend. Until the end of next year, provided that inflation rates continue to remain stable within acceptable limits, and all of this depends on developments in the economy and global politics, which we are accustomed to being surprising.