The Compass – Muhammad Saad

Continuing to raise US interest rates will raise the cost of Jordanian debt, according to economists, after the US Federal Reserve’s decision yesterday, Wednesday, to raise the benchmark interest rate for the fourth time by 3 quarters of a percentage point (0.75%).

Economic analyst Hashem Akl said that the Jordanian dinar is pegged to the dollar, and any increase or decrease in interest rates will be reflected in the dinar.

With regard to the burden of the external debt, Akl explained, in previous statements, that there are two things, the first is that the interest is fixed or variable, and if it is variable, it will be affected by the rise and fall, and this is more likely.
In addition, obtaining new loans, according to Akl, will be the interest on them according to the price at the time of borrowing and depends on the negotiating side to reduce the value of the interest.

He added that Jordan’s public debt will be affected by the rise in interest, a problem that all developing countries suffer from, so there are international demands to exempt it from interest and a grace period so that it can face inflation and the rise in commodity and oil prices in particular, noting that poor countries face the risk of high interest rates on debt, which is This impedes economic recovery, and raising US and international interest rates may exacerbate problems in many low-income countries, including Jordan.

In light of Jordanians anticipating a similar expected decision from the Central Bank of Jordan, central banks decided, on Wednesday, to raise key interest rates by 75 basis points during its meeting in July 2022.

The expert and economic analyst, Dr. Hossam Ayesh, said that raising interest rates for the fourth time in America will negatively affect Jordanian borrowers.

Ayesh added, that raising the US interest rate will lead to more raising of local interest rates by the Central Bank of Jordan, and this will lead to more interest hikes on deposits in banks and will affect loans and their interests in terms of the rise.

He noted that raising interest rates in Jordan will raise inflation, reduce citizens’ purchasing power, increase prices locally, in addition to putting pressure on economic growth rates and lead to more economic slowdown.

Ayesh explained that raising the interest rate also reduces government spending and is reflected in unemployment and poverty rates.

The US interest rate hike comes in an attempt to slow the economy and counter inflation, which hit a 40-year high last May and was exacerbated by Russia’s war on Ukraine.

The Central Bank of Jordan obligated the banks to fix the monthly installment of individual loans, and work is being done to find the appropriate mechanism, including prolonging the repayment period or deporting the increase in the amount of installments to the end of the life of the loan.

This is how Arab countries will be affected

Mohannad Erekat, chief analyst at CFI Financial Group, confirms that any “decision to raise interest rates in the United States will be matched by a similar decision in most Arab countries.”

He indicated in statements to “Sky News Arabia” that “the United States is facing a battle in the face of inflation, which may move violently by increasing interest rates, as some reports indicate that the increase may reach 100 basis points.”

Erekat explained that “the central banks in the Arab countries may partner with the Federal Reserve in its efforts to confront inflation, but they also want to preserve the attractiveness of the local currency and its purchasing power.” He said, “Achieving monetary stability in these times is essential for central banks, by maintaining the margin between interest rates on the dollar and the local currency, to avoid the so-called dollarization, to maintain economic growth and encourage investment.”

Erekat considered that “the Arab countries, like the rest of the world, are facing a great challenge for the continuation of economic growth in them, especially since the increase in interest rates means raising the costs of lending, which will increase costs on all economic activities, which may mean reluctance to establish major projects, which may affect negatively affect growth and unemployment rates.

The relationship of gold to an increase in the interest rate

It is customary that gold is a safe haven to preserve value during periods of crisis, although it does not generate a profit, but the price does not collapse, but with the tightening of monetary policy and the rise in the interest rate on the dollar, the return on bonds becomes large, profitable and safe, because the bonds are with a guaranteed return and the risk in them is almost It is almost non-existent, other than the high risk in the stock markets.

A higher bond yield would raise the opportunity cost of gold, as investors are moving away from this metal and accepting bonds to get returns.

Also, gold contracts, whether spot or forward, are denominated in dollars, and the increase in the value of the latter would increase the cost of acquiring gold for holders of other currencies, as they need a greater amount of their currencies to buy the dollar to pay for their gold holdings, and for this the latter loses its attractiveness whenever The strength of the US currency increased.

Diameter

Qatar Central Bank announced that it raised the bank’s deposit rate (QCBDR) by 75 basis points, to 3.00%.

It also raised the bank’s lending rate (QCBLR) by 50 basis points, to 3.75%.

The Qatar Central Bank stated, in a statement, that the decision to raise the interest rate was based on local and international economic data.

In the same context, the Qatar Central Bank decided to raise the QCB Repo Rate by 75 basis points, to become 3.25%.

Saudi Arabia

The Saudi Central Bank said, on Wednesday, that it increased key interest rates by 75 basis points, in a parallel move to a similar increase in interest from the US Central Bank, given the Saudi riyal’s link to the dollar.

The Saudi Central Bank raised the rate of repurchase agreements (repo) and the rate of reverse repo agreements (reverse repo) 75 basis points to 3.0% and 2.5%, respectively.

UAE

The Central Bank of the United Arab Emirates decided to raise the “base rate” on overnight deposit facilities by 75 basis points, as of Thursday, July 28, 2022.

This decision comes after the Federal Reserve announced an increase in the interest rate on reserve balances by 75 basis points at its meeting held today.

The Central Bank also decided to keep the rate applicable to borrowing short-term liquidity from the Central Bank through all existing credit facilities at 50 basis points above the base rate.

The base rate, which is linked to the interest rate on reserve balances approved by the US Federal Reserve, determines the general position of the central bank’s monetary policy. It also provides a minimum effective interest rate for overnight cash market rates in the country.

Kuwait

The Central Bank of Kuwait decided to raise the discount rate by a quarter of a percentage point to 2.50% from 2.25%, as of Thursday.

The Governor of the Central Bank of Kuwait, Basil Al-Haroun, said that the bank decided to raise the discount rate by a quarter of a percentage point from 2.25% to 2.50%, as of Thursday.

It was also decided to make an adjustment at varying rates in the monetary market intervention rates currently applied to all periods of the interest rate structure, including repurchase operations (repo), Central Bank of Kuwait bonds and securitization, the system for accepting time deposits, direct intervention tools, in addition to debt instruments. general.

The governor of the bank, according to the Kuwait News Agency, stated that the Central Bank’s decision came in light of the recent developments in the local and global economic conditions, and geopolitical developments, and the impact of this on global inflation rates, and its reflection on the consumer price index in the State of Kuwait.

And he indicated that the bank’s decisions are based on the diligent follow-up of local and global economic and financial data and information, with the aim of strengthening the environment that supports economic growth, especially the non-oil sectors, and to ensure monetary and financial stability, and to maintain the attractiveness of the national currency as a reliable source of local savings.

Al-Haroun concluded by saying that the Central Bank of Kuwait will continue its monitoring of economic and monetary developments in the local and international markets, in order to take any necessary additional measures to ensure maintaining monetary and financial stability.

the two seas

The Central Bank of Bahrain decided to raise the key interest rate on one-week deposits by 75 basis points to 3.25%.

The Central Bank of Bahrain also raised the overnight deposit rate by 75 basis points to 3%, the four-week deposit rate to 4%, and the discount rate to 4.5%.

The Bahrain News Agency quoted the bank as saying that it continues to monitor developments in the international and local market, in order to take any additional measures necessary to maintain monetary and financial stability in Bahrain.