Jordanian central bank governor has denied reports of revaluing the currency or ending dinar’s peg to the US dollar. The top banker insisted that a tight monetary policy will be maintained to preserve the attractiveness of dinar-denominated assets.
“I think that the peg to the dollar has served the country well for many many years and we don’t see at this point that we need to change the regime or change the level of the Jordanian currency vis-à-vis the US dollar,” Maher Sheikh Hasan told a conference.
Many economists say the dollar peg is providing Jordan stability at a time when the region is going through severe turmoil. Jordan, an aid-dependent economy, is still struggling to recover from the global downturn of 2008-2009 as drop in capital inflows and remittances register a sharp drop.
Maher Sheikh Hasan, the Deputy Central Bank Governor of Jordan, said in a statement on Wednesday he expected the economy to grow by 2.8 to 3% this year compared with 2.6% in 2011.
“One thing one has to keep in mind in the Arab Spring, we are facing a lot of nominal shocks where a fixed exchange regime plays a positive role in absorbing such shocks,” he added while explaining that last February’s rise in benchmark rates that went against a global rate trend was prompted due to potential inflationary risks and helped encourage savings in dinar-denominated assets at a time of regional political uncertainty.
“We recognised the level of concern… to maintain such attractiveness (of dinar-denominated assets), and to compensate investors for the relatively high risk premium it was appropriate to raise interest rates,” Hasan said.
Many bankers believe the central bank is tightening its monetary policy and encouraging dinar-denominated savings on a priority basis by widening the differential between the dinar and the dollar to over 3% in a bid to ward off capital flight.
Sources said recent months have seen modest transfers to the dollar due to its safe haven status.
Sheikh Hasan disclosed that freezing gasoline prices had helped to keep inflation under control which has averaged 3.6% this year, compared to 4.4% during the same period last year.
Inflation is expected to rise to almost 6% in 2012 as the government plans to raise electricity prices and reduce costly state subsidies that has added to fiscal woes, the deputy central bank governor said.
Economists insist reforms of the universal system of fuel subsidies was crucial to reduce the budget deficit to around 5% of GDP this year from 6% in 2011, while adding that the deficit could reach as high as 8% if not aided by Western donors and Saudi Arabia.