Good Read!

[arh777]

Should the central bank try to curb excessive increases in stock prices?


Good read!



The DailyStar - 20/03/2005

By Henry T. Azzam *


AMMAN — Share prices in Jordan surged by more than 28 per cent so far this year, on top of 62 per cent and 54 per cent increases recorded in 2003 and 2002 respectively. Real estate prices in the prime areas of Amman have also been rising at an average annual rate of 30 per cent. Should the Central Bank try to curb such excesses in asset prices through a big enough increase in Jordanian dinar interest rates before the bubble bursts and becomes very difficult to manage? Or is it better to stay the course and let market forces prevail?
The Jordanian economy is exhibiting signs of overheating both in its real and financial sectors. Real growth in gross domestic product (GDP) surged by 7.5 per cent last year, with inflation, measured either by the GDP deflator of 4.7 per cent or the consumer price index of 3.4 per cent, hitting high levels as well. Real interest rates on the Jordanian dinar have collapsed after reaching their highs in 1999 and have until recently been in negative territories, marking the most accommodative monetary policy we have seen since the 1970s.


http://www.menafn.com/qn_news_story_s.asp?StoryId=84572

[Melech Shel Hofesh]

"In Jordan, because the Jordanian dinar is pegged to the dollar, the Central Bank feels compelled to follow the directional movements of dollar interest rates, even when the economic cycle in Jordan is not moving in tandem with that of the US.

For example, during periods of slow domestic economic growth where monetary policy needs to be accommodative, the Central Bank will not be able to lower interest rates on the Jordanian dinar if the US dollar rates are firm or rising.

However, when interest rates in the US are on an upcycle, as it is the case now, and economic conditions in Jordan require tighter monetary policy, then the Central Bank should be able to allow interest rates on the Jordanian dinar to rise at a higher pace than those on the dollar, restoring real interest rates on the Jordanian dinar to a more normal levels.

This will change the risk/return profile of investors, encouraging higher savings and less speculation in the stock market, with more money moving into Jordanian dinar accounts instead of dollar deposits."


Time to wire out more funds, and convert into the DINAR account. :mad: Yes the potential is incredible, but don't you hate being without your immediate cash?