February 2, 2015 / 8:50 PM / 5 years ago

UPDATE 2-Jordan c.bank cuts rates by 25 bps as inflation slows

* Central bank cuts rates citing improved inflation outlook

* Plunging crude prices is boon for oil importer Jordan

* Lower oil prices also boost government’s fiscal position (Adds c.bank governor comments, more details, background)

By Suleiman Al-Khalidi

AMMAN, Feb 2 (Reuters) - Jordan’s Central Bank said on Monday it would cut its benchmark lending rates by 25 basis points on Tuesday, its first reduction since last June, following a record build-up in foreign reserves and an improved inflation outlook.

The Central Bank of Jordan (CBJ) said it would trim its discount rate to 4.00 percent and overnight repo rate to 3.75 percent as of Tuesday. The rate on weekly/other repurchase agreements was cut to 2.75 percent.

The bank attributed its decision to a combination of slowing inflation, the increased attractiveness of dinar-denominated assets and a big improvement in the current account, which it said reflected robust economic growth and a record level of foreign exchange reserves.

“The move will allow banks to meet their operational needs and raise their ability to manage their liquidity more efficiently,” Central Bank Governor Zaid Fariz said in a statement.

Fariz also said the move would give the Central Bank “the needed flexibility in managing its monetary tools to attain the goal of preserving monetary stability”.

The plunge in oil prices to almost $50 a barrel from around $115 since mid-2014 is a major boon for Jordan, which imports all its oil needs.

As well as narrowing the current account gap, cheaper oil will strengthen the government’s fiscal position by reducing fuel subsidies and losses at the state electricity company.

The CBJ said it was “continuing to follow all monetary and economic developments to ensure monetary stability and promote an attractive investment climate”.

With foreign reserves at a record high of $14 billion, or the equivalent of almost seven months of imports, the bank has the flexibility to finetune its interest rate policy to encourage growth, Fariz said.

Monday’s announcement marks the fifth rate cut since the turmoil prompted by the Arab Spring uprisings in 2011 forced the central bank to tighten policy.

Jordan’s economy is forecast to have grown 3.8 percent in 2014, up from a trough of 2.3 percent in 2010, despite the pressures of having to accommodate hundreds of thousands of Syrian refugees.

Inflation is expected to decline to about 2 percent by the end of 2015 from around 2.5 percent in 2014 due to a sharp fall in oil prices and other commodities, officials say.

Reporting by Suleiman Al-Khalidi; Editing by Gareth Jones

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