Jordanian rate cuts go into effect

This serves as an indication that the cash-strapped Arab kingdom was being hard hit by the global financial crisis.

The Jordanian Central Bank's 0.5 percentage-point cut in key lending rates went into effect Tuesday, as indications mounted that the cash-strapped Arab kingdom was being hard hit by the global financial crisis. The central bank had last week lowered the discount rate to 6.25 percent and the repo rate to 6%. It also slashed the reserve requirement in private bank deposits by 1 percentage point, to 9%. Officials, in a bid to avert further complaints that they have been slow to act as inflation hit a record 15.4%, had cautioned that the impact of the move would not be felt immediately. Economists praised the central bank's move, with former finance minister Wasef Azar saying the cuts would stimulate borrowing while the reduction in the reserve requirement would free up $254 million for local banks. Deposits in those banks are estimated at $25.4 billion. The rate cuts were aimed in part at stimulating the country's battered stock exchange, which is down more than 25% since the beginning of the year. That decline has been eclipsed by massive drops of more than 60% in some of the Arab world's other key stock exchanges. The oil-rich nations of the Gulf have either cut interest rates or pumped funds into their banking sector to battle the crisis and bolster investor confidence. But Jordan is shouldering a $7.1b. foreign debt and is largely dependent on foreign aid, as well as overseas workers' remittances, to keep its economy afloat. It has also been forced to take in tens of thousands of refugees from neighboring Iraq, further straining its economy. In a further indication of the financial woes, the head of a group of car dealers operating in Jordan's duty free zone said Tuesday that vehicle sales were down sharply since the beginning of the year. Nabil Ruman said vehicle sales were off 50%, threatening the existence of some 4,000 car dealers who own hundreds of shops in the region. The free zones are an important source of revenue for the country. Jordanian finance officials insist the global meltdown has had little immediate effect on the kingdom, pointing to a continued flow in foreign aid and ample liquidity and hard currency reserves. US economic and military assistance reached $663.5m. this year, while Saudi aid - in oil and cash - amounted to $500m.