Role & Impact of Interest Rate in Jordan’ Economy from Points of View of Banking Managers


  • REEM SAHER alaraj Assistant Professor Faculty of Management & Finance Middle East University



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. 


Abdelrahim, Khalil & Farid Flemban (2009) Economic Feasibility of Pegged Riyal to US Dollar & Options for Adjusting Jordanian Foreign Exchange System. Taif University Research Journal no. 2, 2009.

Ahuja. H.L (2006) Modern Microeconomics: Theory and Application. S. Chand & Company LTD. New Delhi.

Alhwimani, Fahd Ben Abdullah (2015) Impact of the American Monetary Policy upon Saudi Monetary Policy. Saudi Economic Society. Al-Riyadh. P.14

Alwatan (2015) Decline of Interest Rate in China. No. 5505 dated October 26.

Arab Monetary Fund (2015) Developing Arab Bond Markets. Institute of Economic Policies. A Conference in December. Abu- Dhabi. P.13

Central Bank of Jordan, Annual Reports 2010-2015. Research Department

Begg David, Gianluigi, Vernasca, Stanley fischer, Rudiger Dornbush(2011) Economics, 10th Edition, McGraw-Hill Education.London.

Central Bank of Jordan. Statistical Monthly Bulletins 2015-2016 . Amman

Edwin. H. Neave (2009) Dealing with Global Credit and Liquidity Crisis in Modern Financial Systems: Theories and Application. John Wiley &Sons Inc. New Jersey.

Federal Reserve Bank (2015) Declining and Rising Interest Rates on Federal Funds. Washington D.C

Henry C. Murphy (1950) Role of Interest Rates in A Changing World: Reappraisal of The Easy Money. The Journal of Finance on December 29, 1950. P.11.


IMF (2015) Financial Statistics. Washington DC.

James, Phillip C. (2014) Sector Rotation and Interest Rate Policy. New York

Mackenzie International Consultative Institute (2015) Saudi Arabia Far Away from Oil Sector. Riyadh p.14.

Ministry of Finance (2016) Public Finance, Bulletin No.4 Vol.18 May.Amman

Nilufer , Ozdemir & Cuneyt, Altinoz (2012) Determinants of interest rate pass-through for emerging market economies: the role of financial market structure.

International Advances in Economic Research. 18.4 (Nov. 2012): p397

Samuelson, Paul & Nordhaus, William (2005) Economics. 18th Edition. McGraw Hill. New York. PP;695-697

Yelen, Janet (2015) Raising Interest Rate on US Dollar in 2016. Middle East Journal. No 13491, November 15, 2015