Abstract
<p><strong>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. </strong><strong>Moreover, the study concluded the determinants of interest rate in Jordan are money supply, demand for money, inflation and economic conditions. </strong><strong>In order to have an effective role for interest rate in monetary policy, the researcher recommends pegging JD to a basket of currencies</strong>. </p>
Highlights
There is a controversy among economists and financial analysts on the role of interest rate as a tool for monetary easing and tightening policies and their impact on stimulating economic growth, creation of employment, provision of liquidity, controlling inflation and whether monetary easing policy should be stopped due to its burden on the government budget and public debt which reached more than 14Al-Araj, IJBSR (2017), 07(04): 15-28 trillion dollar in USA
The research problem could be formulated in the following research questions: (1) what is the role of interest rate in Jordanian monetary policy? (2) What is the impact of changing interest rate on the Jordanian economy?
The conclusions of the study could be summarized as follows: (1) Pegging Jordanian Dinar (JD) to American Dollar has restricted the role of interest rate as a tool of monetary policy in Jordan
Summary
There is a controversy among economists and financial analysts on the role of interest rate as a tool for monetary easing and tightening policies and their impact on stimulating economic growth, creation of employment, provision of liquidity, controlling inflation and whether monetary easing policy should be stopped due to its burden on the government budget and public debt which reached more than 14. Various scenarios are open to Central Bank in Jordan (CBJ) to change interest rate as a tool of monetary policy to control inflation, stimulate economic growth, generate employment and increase aggregate demand. The research problem stems from the significance of using interest rate as a tool of Jordanian monetary policy in the light of pegging Jordanian Dinar to US Dollar and the impact of changing interest rate on Jordan’s economy. A questionnaire was designed by the researcher including 34 paragraphs on role, impact and determinants of interest rate in Jordan and the questionnaire was sent to several universities’ professors in finance as referees for evaluating its appropriateness and several amendments were made according to the suggested changes.The reliability of the questionnaire was tested by Cronbach Alpha as follows:.
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