Jordanian Central Bank Cuts Rates
The Jordanian Central Bank’s 0.5 percentage point cut in key lending rates went into effect Tuesday, as indications mounted that the cash-strapped Arab kingdom was being hard hit by the global financial crisis. The Central Bank had last week lowered the discount rate to 6.25 percent and the repo rate to 6 percent. It also slashed the reserve requirement in private bank deposits by 1 percentage point, to 9 percent.
Economists praised the Central Bank’s move, with former Finance Minister Wasef Azar saying the cuts would stimulate borrowing, while the reduction in the reserve requirement would free up $254 million for local banks. Deposits in those banks are estimated at $25.4 billion. The rate cuts were aimed in part at stimulating the country’s battered stock exchange, which is down over 25 percent since the beginning of the year.
That decline has been eclipsed by massive drops of over 60 percent in some of the Arab world’s other key stock exchanges. The oil-rich nations of the Gulf have either cut interest rates or pumped funds into their banking sector to battle the crisis and bolster investor confidence.
But Jordan is shouldering a $7.1 billion foreign debt, and is largely dependent on foreign aid, as well as overseas worker remittances, to keep its economy afloat. It has also been forced to take in tens of thousands of refugees from neighboring Iraq, further straining its economy.
Jordanian finance officials insist the global meltdown has had little immediate effect on the Kingdom, pointing to a continued flow in foreign aid and ample liquidity and hard currency reserves. US economic and military assistance reached $663.5 million this year, while Saudi aid in oil and cash amounted to $500 million.
Kasey Malcoun
