The Central Bank of Jordan (CBJ) Thursday decided to raise the interest rate on its monetary policy instruments by 75 basis points, effective as of Sunday. A move that was met with varying opinions by economic experts.

The CBJ open market operations committee’s decision was taken in line with the regional and international monetary markets' interest rates changes, to address the anticipated inflation pressures amid the rising global inflation rates, the bank was quoted by the Jordan News Agency, Petra, as saying.

While some experts told Jordan News that the decision is in line with the bank's policy of strengthening the foundations of monetary stability and maintaining the attractiveness of the Jordanian dinar, others claimed that it will negatively affect Jordan’s economic growth by decreasing investment.

Economic adviser and former president of the Banks Association Adli Kandah told Jordan News that "CBJ was forced to increase the interest rate because the dinar is pegged to the dollar".

He added that "the US Federal Reserve raised interest rates, and CBJ had to do the same to maintain exchange compatibility, and preserve the value of the dinar".

He also said that the hike in interest rate will impact the economic activity, stressing that CBJ should come up with incentive programs that would enable the economy.

"There is a JD700 million liquidity at the central bank to support small- and medium-sized companies with low interest, and that is fixed and will not change. In order to revive the economy, owners of companies and projects must benefit from these programs," Kandah said.

Tarek Hijazi, managing director of the Jordanian Businessmen Association, said that interest rates "constitute a major obstacle to attracting investors".

Despite this, "I agree with the decision, taken to maintain the exchange rate of the Jordanian dinar, which may be affected in the long run, as the purchasing power will weaken", Hijazi told Jordan News.

He stressed the importance of encouraging citizens to invest, especially as there "will be an easing of the trend to consume and spend".

"Mega-projects must be established to provide job opportunities and contribute to improving and reviving the economy, and raising growth rates, especially since higher interest rates also mean higher indebtedness," he added.

Economist Zyan Zawaneh told Jordan News that "it is difficult to defend continued high interest rates".

"The high inflation rate that Jordan has been witnessing for months is imported, the result of the global economic and political crises. Therefore, raising the interest rate will not solve the problem," he said, adding that "only the countries that caused the high rate of inflation, such as US and Europe, can tackle it."

Demonstrating the extent to which small- and medium-sized companies benefit from the incentive programs provided by CBJ could help measure the impact of these programs on the Jordanian economy and the extent of its contribution to its recovery, he said.

The increase in the interest rate will eventually weaken the recovery started at the end of the COVID-19 pandemic, “that is why the central bank, in cooperation with the government and the private sector, must find real solutions to revive the economy", Zawaneh said.

Former minister of finance, Ezz Al-Deen Al-Kanakreyye told Jordan News that “Jordan, like any other country in the world, is directly or indirectly affected by global economic and political changes, including the rise in global prices of crude oil, and the four consecutive US Federal Bank increases in interest rates, the most recent at the end of last week, a 75 basis points increase, which led most central banks in the world, including Jordan’s, to follow suit to protect the exchange rates of their currencies and to maintain monetary stability".

These changes, he added "affect the national economy in terms of economic growth, investment, unemployment, and there is fear among many that the effects of these challenges will continue, so it is necessary to strengthen the programs in force, both economic and social, and launch new urgent programs, projects, and procedures to reduce their effects, especially on the low-income earners and small investors".

The increase in interest on deposits make people tend to increase savings, at the expense of investment, unless they find that “there is a project that achieves a return that exceeds the return on savings”, he added.

"Therefore, there is no room for increasing investment except by enabling the economic sectors to reduce their costs so that they can achieve a return that exceeds the return on saving and the cost of financing by borrowing," Kanakreyye said.

The decline in the exchange rate of the euro against the dollar affects many economic aspects; it increases the cost of exports to Europe, and decreases the cost of imports from Europe and the cost of some imported material and production inputs, he said, adding that the more the volume of export grows and efforts are exerted to reduce the cost of economic sectors, especially tourism, the more the economy grows.

Kanakreyye also said that "there is no doubt that qualified Jordanian cadres will have a large share in the employment required by the Gulf countries to implement their projects. We have begun to notice the high demand for Jordanian labor to work in the Gulf countries in various sectors, including tourism".

According to Kanakreyye, Jordanian companies compete for bids and projects in other countries, and many Jordanian companies and banks have established “successful activities and projects” abroad.

"It remains to always emphasize that whatever the challenges, there are opportunities and areas that can be strengthened in a way that enhances the needed economic growth," he concluded.