The Open Market Operations Committee at the Central Bank of Jordan held its sixth meeting this year, where it decided to reduce interest rates on all monetary policy instruments by 50 basis points as of Sunday, September 22, 2024.
The decision comes after the end of the monetary tightening cycle applied by the Central Bank since the end of March 2022, like other central banks in the region and the world, with the aim of maintaining monetary stability, especially the attractiveness of the Jordanian dinar against other currencies, and containing the inflationary pressures that accompanied the recovery phase from the repercussions of the Corona pandemic. The committee stressed that the decision to reduce interest rates came in light of the monetary policy’s achievement of its set objectives, as reflected in monetary indicators, most notably maintaining the strength of the dinar, reinforced by the increase in foreign reserves held by the Central Bank from $ 18 billion in March 2022 to an unprecedented level of $ 20 billion at the end of August 2024.
This is enough to cover the Kingdom’s imports of goods and services for 8.7 months, and the decrease in the dollarization rate from 19.4% in March 2022 to 18.5% at the end of July 2024, in addition to the decrease in the inflation rate from its peak during the inflationary wave that reached 5.4%, year-on-year, in September 2022 to 1.9% in August 2024. Despite the rate hikes over the past two years, banks’ interest rate margins (measured by the difference between the interest rate on loans and advances, and the interest rate on term deposits) fell by about 114 basis points until the end of July 2024, to 2.24%, the lowest in nearly three decades, and reflects the operational efficiency of banks.
During the meeting, the committee reviewed many indicators that confirm the strength of banking and economic conditions, as deposits with banks at the end of July 2024 increased by about 2.9 billion dinars, with a growth of 6.8% year-on-year, to reach 45.7 billion dinars, and credit facilities granted by banks increased by about 1.2 billion dinars, with a growth of 3.5% on an annual basis, to reach 34.6 billion dinars. The latest indicators of financial strength, as they are during the first half of this year, confirm the soundness and strength of the Jordanian banking sector as it enjoys a high level of capital of 17.6%, which is among the high ratios in the region, and maintains comfortable levels of legal liquidity of 138.8%, exceeding the legal ratio imposed by the Central Bank of 100%. The non-performing debt ratio stood at 5.6% at the end of the first half of 2024.
On the other hand, the various economic indicators showed the resilience of the national economy and its ability to face shocks and conditions in the region, supported by financial and economic reform efforts and the flexibility of economic policies applied, which enhanced the confidence of investors, international financial institutions and credit rating agencies in the national economy. Remittances of workers during the first seven months of 2024 increased by 3.6% to reach $ 2.05 billion, and tourism income achieved about $ 5 billion during the first eight months of 2024, a limited decrease of 3.7% from the same period last year, despite the instability in the region, and the quantities of national exports increased by 5.4% during the first half of 2024, but the decline in the prices of many goods globally led to a decline in the value of total exports by 1% to $6.3 billion.
However, the trade deficit decreased by 2.3% as a result of a weaker value of imports than the value of total exports. The national economy recorded a growth rate of 2.0% during the first quarter of this year and the growth rate is estimated to range around 2.4% for the full year.
The Central Bank affirms its continuous commitment to following up on economic and financial developments locally, regionally and globally, and taking appropriate measures to ensure the preservation of monetary and financial stability in the Kingdom, and creating an economic and banking environment that contributes to promoting economic growth.
