Open AccessRole & Impact of Interest Rate in Jordan’ Economy from Points of View of Banking Managers
Author(s) -
Reem Al-Araj
Publication year - 2017
Publication title -
international journal of business and social research
Language(s) - English
Resource type - Journals
eISSN - 2164-2559
pISSN - 2164-2540
DOI - 10.18533/ijbsr.v7i4.1039
Subject(s) - interest rate , market liquidity , monetary policy , monetary economics , economics , exchange rate , order (exchange) , net interest margin , money supply , inflation (cosmology) , credit channel , profit (economics) , economy , inflation targeting , finance , capital adequacy ratio , physics , theoretical physics , microeconomics
The research aimed at investigating the role, impact and determinants of interest rate in Jordanian economy from view points of banking managers in Jordan. The methodology is descriptive and analytical using mean, standard deviation, t-test and percentages as statistical tools. The study concluded that the role of interest rate in Jordanian monetary policy is restricted by two factors: pegging JD with US$ which limits the effective role of interest rate in Jordanian monetary policy and the dual banking system of traditional and Islamic banks where Islamic banks do not deal with Interest rate. Raising interest rate in Jordan caused higher cost of credit for companies, less competitiveness of exports, less liquidity in the economy, higher profit margin for banks, higher exchange rate of JD and higher inflation. Nevertheless, lowering interest rate in Jordan caused lower cost of borrowing, higher liquidity, better competitiveness of exports and more credit facilities by banks but inflation was much lower. Moreover, the study concluded the determinants of interest rate in Jordan are money supply, demand for money, inflation and economic conditions. In order to have an effective role for interest rate in monetary policy, the researcher recommends pegging JD to a basket of currencies .