The Central Bank of Jordan has slashed to eight percent the compulsory reserve requirements on deposits and savings accounts in commercial banks. Businessmen and bankers hailed the new drop from 10 to 8 percent as “a positive step on the road to spurring the sluggish economy.”
The new percentage, effective Jan. 1, will release for potential investment some JD160 million that would have been frozen otherwise.
The banking sector has in excess of JD8 billion deposits in both foreign and local currency.
Head of the trading department at the Amman Stock Exchange Wajdi Makhamreh said the CBJ appeared keen to give the Kingdom's 20 commercial banks a leading role in the development process.
In an interview with the Arabic daily Al Aswaq, Makhamreh added that the released funds would rejuvenate the tourist and information technology sectors.
Khaled Hattar, from the Jordan National Bank, said the CBJ move gave commercial banks incentives to streamline extra funds towards more loans and investment projects.
On another front, the CBJ, cushioned by record foreign currency reserves currently in excess of $2 billion, has progressively reduced interest rates over the past 18 months.
This was part of a two-tier strategy designed to activate the semi-idle market along with cutting the compulsory reserve requirements.
Two similar cuts have preceded this week's two percent drop in compulsory reserve requirements, bringing the requirement down from 14 percent in June.
Throughout the 1990s, the compulsory reserve percentage had hovered over 35 percent of a bank's reserves, as part of strict monetary policies to guarantee depositors' funds and support a shaky dinar in the wake of the 1989 erosion of the national currency.
But now the CBJ feels more at ease in light of comfortable hard currency reserves and stronger banking systems by virtue of successive mergers, banking sources said. ¯ (Jordan Times)
By Saad G. Hattar
© 2000 Mena Report (www.menareport.com)