Jordan Central Bank Statement

Author: IFLR Correspondent | Published: 24 Sep 2019
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Despite the uncertainty in the region, Jordan's economy grew by 1.9% in 2018, compared with 2.1% in 2017. However, this rate is 0.5% higher than the average growth rate in MENA countries of 1.4%. As for Q1 2019, the economy grew by 2.0% compared with 1.9% during the same quarter of 2018. GDP is expected to grow by 2.2% and 2.4% in 2019 and 2020, respectively.

The inflation rate reached 4.5% in 2018, compared with 3.3% in 2017, driven by higher oil prices and several government fiscal measures. By end-July 2019, inflation dropped to 0.5%, from 4.5% during the same period of 2018. Inflation is expected to not exceed 1.0% in 2019, driven by the fading out effects of the government measures, the expected decline in oil and food prices, and the slowdown in global growth.

Monetary and financial stability is the CBJ's primary objective. Jordan's government delegated this responsibility to the CBJ, as an independent central bank, and it is enshrined in the CBJ's law. The CBJ's independence enhances its credibility and transparency, which are necessary to manage monetary policy and achieve its objectives.

In this regard, the CBJ has balanced the preservation of monetary and financial stability with the goal of stimulating economic growth. Monetary policy tightening during late 2016 to 2018 was key to keep the reserves at comfortable levels. On August 4 2019, the CBJ decided to cut interest rates on all its monetary policy tools, in response to the recent interest rates developments in regional and international markets, and in light of the significant improvements in the balance of payment and monetary indicators.

However, while the CBJ stands ready to react immediately to ensure that its objectives are met, it has on the other hand introduced many initiatives to improve bank financing to vital economic activities to boost job creation and economic activity.

The CBJ is fully committed to maintaining the exchange-rate peg, which has proved its efficiency as the nominal anchor of monetary policy and helped to maintain a comfortable level of foreign reserves. By end-July 2019, reserves covered 7.5 months of goods and services imports. Recent external sector indicators are encouraging and point to a 3.0% decline in the trade deficit for the first five months of 2019. This decline reflected a 0.6% drop in imports and 3.4% increase in exports. During the H1 2019, tourism income grew by 8.3%, reaching $2.6 billion, while total workers' remittances increased by 1.3%, reaching $1.8 billion.

Fintech is a crucial enabler in making financial services more efficient and convenient for financial institutions and consumers. At the same time, it ensures the integrity of the financial system. The CBJ has established a FinTech Regulatory Sandbox to support innovation, promote entrepreneurship, and provide a safe environment for applicants to test innovative solutions.

The CBJ has also maintained a cautious approach in observing monetary stability and ensuring the protection of financial consumers in the Kingdom. In 2014, the Bank banned financial institutions from dealing with cryptocurrencies. At the same time, it announced its intention to experiment with technologies such as blockchain.

Jordan is constantly facing new challenges and risks, including cyber and systemic risks resulting particularly from fintech and digital financial services. Regulatory reforms and accounting standards, such as Basel III and IFRS 9, enhance prudential regulation.

These risks are being contained. Our banking system remains resilient and safe due to a strong regulatory framework and close monitoring of emerging risks.