March 4, 2020 / 11:15 AM / a month ago

UPDATE 2-Jordan to cut main rates by 50 bps to spur growth

(Adds central bank statement and more details)

By Suleiman Al-Khalidi

AMMAN, March 4 (Reuters) - The Central Bank of Jordan said it would cut its main interest rates by 50 basis points on Thursday, following the U.S. Fed’s 50 bps rate cut on Tuesday, to encourage consumption and investment needed to spur economic growth.

The benchmark interest rate will be cut to 3.50% from 4.00%, a senior central bank official told Reuters.

The Fed’s rate cut was prompted about fears over the impact of the spreading coronavirus. Jordan’s currency is pegged to the dollar and the kingdom follows Fed moves almost unfailingly.

“The Central Bank will continue to follow local and international economic developments and take the necessary measures to preserve monetary and financial stability,” the bank said.

The move is the fourth interest rate cut since August last year that has accumulatively brought down benchmark rates by 125 basis points, a central bank official said.

Businesses have been complaining about weak investor confidence, with some sectors hit by a downturn and drop in profitability.

Despite an economic downturn and a slowdown in domestic consumption, the kingdom has not seen any drop in capital inflows or capital flight, officials say.

The government has unveiled several stimulus measures in the last few months, from cutting fees for real estate transactions to giving incentives for exporters and industry to revive stagnant business activity.

The International Monetary Fund and Jordan reached a agreement in January on a new four-year programme focused on growth and stimulating job creation to rejuvenate economic growth.

The IMF expects Jordan’s economy to grow around 2.1% in 2020 but gradually rise in the next few years to 3.3%.

Bankers say the (CBJ) policy to allow a wider interest rate differential against the dollar in favour of the dinar had encouraged banks and depositors to keep their funds in dinar-denominated assets.

A main plank of the monetary regime is the defence of the dinar, a policy that the IMF says has served the national economy well.

Jordan said on Monday a man who had flown in from Italy had tested positive for the coronavirus, the first case confirmed in the country, state news agency Petra reported. (Reporting by Suleiman Al-Khalidi; Editing by Pravin Char and Nick Macfie)

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