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Interest Rate Monitor July 14, 2013. 2 Brief Overview  Inflation reaches 6.5% during first half of the year; upward pressures increase on interest rates.

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Presentation on theme: "Interest Rate Monitor July 14, 2013. 2 Brief Overview  Inflation reaches 6.5% during first half of the year; upward pressures increase on interest rates."— Presentation transcript:

1 Interest Rate Monitor July 14, 2013

2 2 Brief Overview  Inflation reaches 6.5% during first half of the year; upward pressures increase on interest rates Inflation reaches 6.5% during first half of the year; upward pressures increase on interest rates International MENA Region Local Economy  Amman Stock Exchange Amman Stock Exchange  Local Debt Monitor Local Debt Monitor  Prime Lending Rates Prime Lending Rates Markets overview New and analysis US: Bond yields drop following dovish comments by Bernanke that assure accommodative policy IMF: IMF slashes global growth forecast again Eurozone: Peripheral concerns were rekindled and eurozone recovery remains uncertain Major Indices: US stocks edge to fresh highs Commodities and Currencies: Continued geopolitical pressures push oil prices higher Central Bank Meeting Calendar Interest Rate Forecast The Week Ahead Egypt: Treasury yields continue to fall as foreign aid flows in GCC News Highlights GCC interbank rates Comparative MENA Markets China: Data continue to point to slowdown in china; government still refuses to intervene Japan: BOJ keeps policy unchanged but assesses that economic recovery improved moderately

3 3 International

4 4 Bonds jumped as markets digested signs that the Fed is in no hurry to withdraw its monetary-policy support Minutes from the Fed's latest rate-setting meeting released Wednesday showed that officials are deeply divided over when to start peeling back the central bank's bond-buying program. Soothing comments from Mr. Bernanke on Wednesday put a ceiling on the rise in yields for now. The Fed chief reassured investors that the central bank isn't in a rush to taper its bond-buying program and that a pullback on the central bank's bond-buying program doesn't mean a shift to raising interest rates. The yield on the 10-year US Treasury was up 1bp at 2.59% Friday, but down 13bp over the week.

5 5 Federal Reserve Chairman Ben Bernanke sought to reassure jittery markets that while the central bank could start winding down its $85 billion-a-month bond-buying program later this year, Fed officials aren't abandoning their broader commitment to easy-money policies. "You can only conclude that highly accommodative monetary policy for the foreseeable future is what's needed in the U.S. economy," he said Wednesday at a conference held by the National Bureau of Economic Research, citing the high unemployment rate, low inflation and "quite restrictive" fiscal policy; hitting home the message that a scaling back, or “tapering”, of the Fed’s quantitative easing programme was not the same thing as policy tightening. Among other things Bernanke said that the 6.5% should not be regarded as a fixed benchmark for when Fed will start raising interest rates. It might be some time after the jobless rates hits 6.5% before interest is raised, particularly if inflation stays below 2% - inflation is currently near 1%. Mr. Bernanke, speaking at Wednesday's conference, said he was "somewhat optimistic" about the economy. However, he noted the 7.6% June unemployment rate "probably understates the weakness of the labor market," inflation is running below the Fed's 2% objective and fiscal policy is quite restrictive. Bernanke’s dovish comments,,, 7.0%: Fed target for finishing quantitative easing 6.5%: Fed target for considering rate hikes June: 7.6%

6 6 The remarks Wednesday came a few hours after minutes of the Fed's June policy meeting showed officials deeply divided over when to start unwinding the bond-buying program. Bernanke had indicated at a conference following the meeting that tapering would start later this year and that its bond purchase would be completely terminated by mid However, the main message from the minutes from the June Fed meeting is that there is no clear consensus on when Fed should start tapering, how gradual the process should be how it should be communicated to the market. Some wanted more information about the economy before laying out a plan to start reducing the bond purchases. A few were concerned that inflation was getting so low that pulling back the program might be unwarranted. On the other hand, about half the officials walked into the meeting thinking the central bank might end the program altogether by the end of the year, the minutes showed. The minutes also showed that Fed officials appear largely in agreement that their decision on the bond program is separate and distinct from their decision-making on raising short-term rates, which have hovered near zero since late "Many members indicated that decisions about the pace and composition of asset purchases were distinct from decisions about the appropriate level of the federal funds rate," and that rates were likely to stay low for a considerable time after the bond program ends, the minutes said. Fed minutes: tapering not a done deal Uncertainty surrounding the Fed is likely to continue

7 7 Consumer confidence unexpectedly cooled in July as Americans became less optimistic about the outlook for the economy. The Thomson Reuters/University of Michigan preliminary index of consumer sentiment decreased to 83.9 in July from 84.1 the month prior, today’s report showed. The gauge reached an almost six-year high of 84.5 in May. The recent increases in mortgage rates and prices at the gas pump may have restrained consumers’ views on the economy in the next six months. At the same time, the group’s gauge of current conditions jumped to a six-year high as stock prices approached a record after falling in the middle of June. Nevertheless, U.S. consumers are very upbeat about the present economy. The current conditions index in early July jumped to 99.7 from 93.8 at the end of June. It is the highest reading since July Meanwhile, inflation expectations remain low, according to the Michigan report. The one-year inflation expectations reading for early July increased to 3.3% from a final June reading of 3.0%. Inflation expectations covering the next five to 10 years remained at 2.9%. Consumer Sentiment in U.S. Unexpectedly Declines

8 8 IMF cuts global growth forecasts The International Monetary Fund cut its forecast for world economic growth for a third time this year due to slowing emerging markets and a prolonged recession in the eurozone. In an update to its World Economic Outlook, the IMF said Tuesday that it now expects world output to expand by just 3.1% in 2013, down from 3.3% in April. In January, it was forecasting growth of 3.5%. The revision means the global economy will have failed to pick up pace over the past two years, although the IMF expects a slight acceleration in growth in 2014 to 3.8%. Since its last global report in April, the IMF has cut its 2013 growth forecasts for the U.S. and China to 1.7% and 7.8%, respectively. And it now expects the eurozone economy -- mired in its longest recession -- to shrink by 0.6% this year, double the rate of contraction forecast in April. The Fund said it underestimated the depth of the recession in Europe, and also did not expect the United States to go ahead with growth-stunting spending cuts.

9 9 IMF also warns that global growth could slow further if the pull-back from QE in the US triggers reversals in capital flows "While old risks remain, new risks have emerged, including the possibility of a longer growth slowdown in emerging market economies," the IMF said, pointing to slowing credit growth and the possibility that capital will return to the U.S. if the Federal Reserve begins to unwind its policy of buying government bonds to keep interest rates low. Top fund officials have recently criticized the Fed for not communicating clearly enough about its exit plans. The IMF, which acts as the world's emergency lender and economic counselor, said the U.S. central bank should keep its $85 billion-a-month cash injections going until at least the end of the year, and only slightly let up on the easy-money accelerator in early The knock-on effect of slower growth in China is already being felt in other commodity-rich emerging markets such as Brazil and South Africa. The IMF cuts its forecast for Brazil to 2.5% from 3% and for South Africa to 2% from 2.8%. Three major economies should buck the trend, however. Japan, basking in the early success of Abenomics, could see growth of 2% this year, up from a previous forecast of 1.6%. The IMF has also revised up its 2013 forecasts for the U.K by 0.3% to 0.9% growth this year and Canada was revised up by 0.2%.

10 10 Peripheral concerns were rekindled this week Fresh concerns about the outlook for the eurozone periphery were rekindled this week, despite Greece securing its next loan tranche at Monday’s Eurogroup meeting. The yield on the 10-year German Bund, meanwhile, dipped 7bp to 1.55% Friday, for a weekly decline of 17bp, in part reflecting these concerns. On the other hand, yields for 10-year Italian and Spanish bonds rose by 6bp and 12bp respectively. Portugal returned to the spotlight Friday as its 10-year yield jumped 63bp to 7.52% – leaving it 40bp higher over the week. Fresh political uncertainty in the country heightened concerns about its ability to adhere to reforms demanded by its “troika” of creditors. Fitch removed France's triple-A credit rating, the last of the three main ratings agencies to downgrade France from the top credit rating bench, though it seems that the market has shrugged it off. S&P’s Tuesday cut Italy’s sovereign credit rating by one notch BBB citing worsening economic prospects, and maintains a negative outlook for the country.

11 11 Eurozone’s recovery look to be uneven Germany, the region's biggest economy, provided a stark reminder Monday of the mountain Europe still has to climb. Its exports to the eurozone fell by 9.6% in May compared with the same month last year, and by 1.6% to countries outside Europe. Meanwhile, eurozone factory output fell in May for the first time in four months, data showed on Friday, suggesting a fragile and uneven recovery in the bloc that is struggling with record joblessness and renewed political tensions in southern Europe. Industrial production in the 17 countries using the single currency fell 0.3% on the month, following a revised 0.5% increase in April, data from the EU's statistics office Eurostat showed. Compared with the same period last year, factory output in May dropped as expected by 1.3%, after a 0.6% contraction in April. Production in Europe's two biggest economies, Germany and France, dropped in May, with Italy and Spain showing small increases.

12 12 Considerable risks continue to face eurozone’s expected return to growth Meanwhile, business sentiment surveys have begun to suggest the rate of decline in the eurozone is slowing but there's still considerable risk to official forecasts of a return to growth later this year. In a report on the eurozone last week, the IMF warned that fragmented financial markets and the high cost of borrowing in peripheral nations was depressing activity across the region. It called on European leaders to do more to repair bank balance sheets, complete work on a banking union, provide further support to the economy via easy monetary policy and show more flexibility on austerity while preserving medium-term debt reduction goals.

13 13 Berlin objects to latest proposal for restructuring banks The European Commission proposed itself as the single authority for winding down banks in the eurozone, which was swiftly rejected by Germany Wednesday. The proposal on bank resolution—the so-called "single resolution mechanism"—announced Wednesday was to form the second pillar in the eurozone's banking union project which aims to break the link between indebted governments and banking systems. The first pillar is a single supervisor for eurozone banks, a task the ECB is expected to assume in the fall of Under the commission's proposal, a "single resolution board" would prepare and carry out restructurings of any of the 6,000 eurozone banks that hit financial problems. It would be backed by a shared fund of some €60 billion financed by contributions from banks. The Commission would reserve the right to make a final decision. Germany has warned repeatedly that a single authority risks contravening EU treaty law, which limits the power of Brussels over national finances. Berlin is calling instead for a two-step approach that starts with a network of national authorities, and only creates a centralized authority once EU treaties have been changed.

14 14 EU Agrees to Keep Aid Flowing to Greece Greece's international creditors reported Monday that all isn't well with the country's mammoth bailout program, but eurozone finance ministers decided the problems weren't enough for them to stop the flow of financial aid to Athens. It seems that eurozone ministers appear to be in a more-forgiving mood. The Greek program is broadly on track—a sharp departure from previous versions of the country's bailout—and some of Greece's toughest critics appeared wary of creating fresh turmoil by turning off the aid spigot again. The ministers agreed to unlock €4 billion in financing due to the Greek government—provided Athens moves to trim government payrolls and adopt other measures demanded by its creditors by July 19. The IMF is due to release another €1.8 billion for Greece once the fund's board meets July 29. The money will be used to keep the government operating, make interest payments and repay €2.17 billion of bonds on Aug. 20 that are now held by the ECB. In October, the government will receive another €1 billion if ministers determine that Greece continues to follow its bailout program. The so-called troika (ECB, IMF and the EU) also said the economic outlook remains "uncertain." Greece's economy, in free fall for the past five years, has "prospects" of returning to growth in 2014 albeit at a meager rate of 0.6%, it said.

15 15 China’s economic slowdown: how much can the economy slow before government decides to intervene A number of data suggests that economic growth in China is slowing, a trend that will test the resolve of the country's leaders as they seek to execute painful but necessary structural reforms. China reported a surprise 3.1% decline in exports from a year earlier on Wednesday, compared with a 1% increase in May and far below the 10.4% average increase for the first half of Imports were down too, by 0.7% from a year earlier, indicating weaker domestic demand. Recent manufacturing data hasn't been much better, and suggests activity is slowing in China's factories. And perhaps most worrying, interbank lending rates spiked to 20% in late June during. The scale of the challenge facing China's leaders should become clearer next week when GDP figures for the second quarter are published. Many economists have scrambled to lower their growth estimates recently, with the consensus settling around an annual rate of 7.5%. Expansion at that pace would make most countries green with envy, but it will be among the slowest rates China has reported in the past two decades. Weaker growth could derail reforms meant to shift the world's second biggest economy to a more sustainable growth model, in which consumption drives growth. President Xi Jinping is by all accounts determined to proceed with the reforms, even if it means tolerating slower growth for now.

16 16 China 'may accept growth below 7%' A top Chinese official has signaled Beijing could live with a significantly lower growth rate, raising the prospect of a sharper slowdown in the world's second-largest economy, and suggesting that the chances of a return to stimulus spending are low. Speaking at a U.S. China summit in Washington D.C. on Thursday, China's Minister of Finance Lou Jiwei said "reaching this year's target shouldn't be too big a problem. But we also don't think there is any big problem with [a growth rate of] 7% or 6.5%." Mr. Lou's remarks also suggested the government may have informally discarded its earlier 7.5% growth target for the year, though it was unclear whether they reflect a new official position. "Growth in the first quarter was 7.7%, the second half could be a bit lower, but achieving the full year target of 7% growth is not a big problem," he said. A 7% growth rate for the year would be the lowest since 1990, and implies a drop in growth to below 7% in the second half of the year. However, in an English-language story released Friday, Xinhua said it corrected a quote attributed to Lou to “there is no doubt that China can achieve this year’s growth target of 7.5%” from its original story dated July 11 that cited him as saying “there is no doubt that China can achieve the growth target, though the 7% goal should not be considered as the bottom line.” Xinhua’s correction of Lou’s comments may indicate the government is seeking to avoid diminishing confidence in the country’s economic outlook already shaken by sliding exports and a cash crunch.

17 17 China’s inflation was stronger than expected In other news, Chinese CPI came in stronger than expected on higher food prices and partly due to a credit surge earlier this year, rebounding to a four-month high. China's inflation rate rose by more than expected in June, increasing to 2.7% from 2.1% the month before. Higher pork prices, a major component of China’s consumer price basket, were the biggest contributor to the jump. On the other hand, the producer price index fell 2.7% y-o-y in June, another indication of the economy’s underlying weakness. While the headline inflation number was above analysts' expectations, it remains below the government's target figure of 3.5%. Analysts say the latest figure reduces the prospect of interest rate cuts in Cutting interest rates risks inflating a property bubble, while tightening may put additional pressure on the economy in the middle of the current global economic uncertainty.

18 18 Bank of Japan sees modest recovery in economy The Bank of Japan (BoJ) said Tuesday the country's economy is "starting to recover modestly". It is the first time the BoJ has described the world's third-largest economy as being on the path towards expansion in more than two years. The upbeat assessment of the economy came as the BoJ left its huge monetary easing programme unchanged. The bank is to stick to its plan of pumping more than 60tn yen ($606bn) a year into the economy. In a sign of confidence in its easing program, which it launched in April in an effort to reverse 15 years of falling prices, the central bank left policy unchanged and stuck to its optimistic outlook for fiscal Thursday's announcement may add weight to the view that the BOJ won't modify its easing program for the time being, unless it becomes clear that more easing steps are needed to produce 2% inflation in two years, the bank's primary policy objective.

19 19 BOJ changes inflation projections,,, At the policy meeting, the BOJ also conducted an interim review of its semiannual growth and inflation projections covering a three-year period from this April, and held on to what many private-sector economists consider an overly optimistic price forecast. The board members' median forecast tipped Japan's core Consumer Price Index to rise 1.9% in the Japanese fiscal year starting April 2015, unchanged from April, when the bank released its first semiannual forecast report under Mr. Kuroda. But the BOJ now sees 0.6% inflation for the current fiscal year, down from an initial forecast for a rise of 0.7%. For the next fiscal year, the bank now predicts 1.3% inflation, down from an initial prediction of 1.4% price growth.

20 20 U.S. stocks edged up to fresh highs

21 21 Oil prices continue to increase due to geopolitical pressures

22 22 Major Interest Rate Forecasts

23 23 The Week Ahead,,,

24 24 Central Bank Meetings Calendar Expected Rate Decision Current Rate MonthCentral Bank 0.25% September 18US Federal Reserve (FOMC) 0.50% August 1European Central Bank (ECB) 0.50% August 1Bank of England (BoE) 0.10% August 7Bank of Japan (BOJ) 0.00% September 19Swiss National Bank (SNB) 1.00% July 17Bank of Canada (BOC) 2.75% August 6Reserve Bank of Australia (RBA) 2.50% July 24Reserve Bank of New Zealand (RBNZ) Calendar for upcoming meetings of main central banks :

25 25 Regional

26 26 Egypt’s Treasury yields continue to fall as foreign aid flows in Egypt’s Treasury yields fell for the second consecutive week, as Gulf states gave Egypt $12 billion in grants, deposits and loans following the ousting of President Morsi. One ‑ quarter of the money is coming in the form of grants, and the bulk of the remainder (US$6bn) will be used to prop up the Central Bank's depleted stock of foreign reserves, which have more than halved since end ‑ 2010, from US$35.8bn to just US$14.9bn in June. The remaining aid will come in the form of fuel products, as Egypt suffers persistent fuel shortages. The amount dwarfs Egypt's balance-of-payments deficit of US$2.1bn in the first nine months of 2012/13 (July 1st ‑ June 30th). Unsurprisingly, the pound strengthened on the news of the aid and the rate on credit default swaps on Egyptian debt plunged. Source: Bloomberg Foreign Aid (US$ bn) Grant Central Bank Deposits Oil Products Saudi Arabia Kuwait UAE Total Breakdown of grants and aid: Source: Bloomberg

27 27 Egypt's annual urban inflation up to 9.8% in June 2013 Egypt’s annual urban inflation rose to 9.8% in June, compared to 7.3% in June of 2012, the most in two years. The rate of urban inflation increased by 0.9% in June compared to May The Egyptian governmental body CAPMAS attributed the rise in CPI to an increase in the cost of vegetables, which was up 23.1% in comparison with June 2012, grain and bread by 16.3%, rent and utility bills by 5.5%. However, the Egyptian pound reached a low of against the Dollar last week, but has since appreciated against the Dollar which should ease inflationary pressures. In May, the International Monetary Fund had predicted that consumer price inflation would reach 10.9% by the end of the 2013 fiscal year in June. The Fund said this figure would climb to 11.6% in 2014 if the Egyptian government implements the subsidy cuts it pledged in negotiations with the Fund over a possible $4.8 billion loan.

28 28 GCC Economic Highlights: Qatar's real GDP grows 6.2% in Q1 According to the Qatar Statistics Authority, Qatar’s real GDP expanded at a rapid pace in the first quarter of 2013, registering growth of 6.2% compared to the same period last year. Manufacturing was the fastest growing sector 12.5%, followed by construction at 11.7%, while restaurants and hotels grew at 10.5% for the first quarter of 2013, compared to the same period last year. On the other hand, the oil and gas sector, which accounts for 42% of GDP, was the lowest contributor to growth, expanding at annual rate of 0.8%. This indicates that Qatar is diversifying away from its traditional role as a hydrocarbon exporter toward a manufacturing and services hub. The acceleration in economic activity is expected to continue as large infrastructure projects are being implemented in Qatar including the $35 billion metro and railway project. At the same time, the current account surplus peaked on robust export performance and inflation remained moderate (3.5% in June year-on- year). Source: Gulf Times Source: Trading Economics

29 29 GCC Economic Highlights: Abu Dhabi inflation inches up 0.9% in June The consumer price inflation in the emirate of Abu Dhabi was 0.9% in June 2013 compared with the same month last year, according to Statistics Centre Abu Dhabi (SCAD). The “transport” group accounted for 31.4% of the overall increase in prices during the period under review, due to a rise of 2.9% in the prices of this group, while the “Restaurants and hotels" group, which advanced 6.9%, accounted for 30.8% of the overall y-o-y increase observed during the period under review. Additionally, “furnishings and household equipment” grew by 3.0% during the first six month of 2013 compared with the same period of 2012, contributing to 16.3% of the net increase. The “housing, water, electricity, gas and other fuels" group was among the main groups that slowed down the rise in consumer prices for the time period. The group detracted 30.3% from the overall rise in CPI, as the group’s prices decline by 0.7%

30 30 OPEC and IEA predict demand will rise, but warn on geopolitical threats to supply OPEC said Wednesday global oil demand will pick up pace next year and rise by about 1 million barrels a day, but it warned of political risk to supply going forward. The caution comes as crude prices have already risen sharply on concerns an Egyptian crisis could cut shipments through the Suez Canal, and away from previous attention to ample supply gushing out of U.S. shale oil formations. In its first estimate for 2014, the Organization of the Petroleum Exporting Countries said world oil demand will surge by 1.04 million barrels a day next year, an increase of around 300,000 barrels compared with the growth predicted for the current year. OPEC, whose members produce more than one in three barrels consumed in the world each day, says it won't benefit from rising oil demand. It sees demand for its crude next year declining by about 300,000 barrels a day to average 29.6 million barrels a day. But the organization warned its supply forecasts from rival producers were subject to a "high level of risk"--largely due to political unrest. It emphasized turmoil in African countries such as South Sudan and in Middle-Eastern nations like Syria and Yemen. Similarly, the International Energy Agency also warned Thursday that geopolitical and other risks could pare any supply gains from a U.S. oil boom next year, as it also predicted global demand for the commodity will pick up pace. While the supply picture is fraught with risks, the agency is predicting global oil demand will grow by 1.21 million barrels a day in That compares with an upwardly revised forecast for oil demand growth of 930,000 barrels a day this year.

31 31 GCC interbank rates Source: Bloomberg

32 32 Comparative MENA Markets For the period 07/07 – 12/07

33 33 Locally

34 34 According to figures released by the Department of Statistics, the inflation rate eased slightly to 6.5% during the first half of 2013 compared to the same period last year. Inflation seemed to have eased over the past few months, but at 6.5% inflation remains high and further inflationary pressures remain present. Among the main commodities groups which contributed to this increase were: Transportation (15.8%); Fuel and Electricity (24.5%); Meat and Dairy (7.1%); Fruits and Vegetables (14.2%); Rents (3%) The report also showed that inflation reached 5.8% during the month of June compared to the same period last year, down from 7.1% the previous month. Inflation was driven by the same groups as mentioned above, but prices of tobacco and cigarettes, medical care and cereals were down. Meanwhile, on a monthly basis inflation rose by 0.8% in June compared to the previous month. Inflation reached 6.5% during first half of the year Forecast: Hikes in electricity tariffs for industrial and commercial outlets are expected to go into effect after Ramadan. Moreover, an increase in electricity tariffs on certain consumption levels for households is expected to be in the range of 5% to 7.5%. According to studies by the IMF and statements by the Minister of Finance Umayya Toukan, raising electricity tariffs is expected to cause inflation to increase by 1% to 1.5%. Electricity hikes are back on the agenda, after the recent disruption in Egyptian gas supply, which is expected to increase the financial losses of the NEPCO by 1.2 to 1.4 million JD per day. The number of Syrian refugees that are entering the country are placing pressure on industries, services and infrastructure in Jordan. Forecast: Hikes in electricity tariffs for industrial and commercial outlets are expected to go into effect after Ramadan. Moreover, an increase in electricity tariffs on certain consumption levels for households is expected to be in the range of 5% to 7.5%. According to studies by the IMF and statements by the Minister of Finance Umayya Toukan, raising electricity tariffs is expected to cause inflation to increase by 1% to 1.5%. Electricity hikes are back on the agenda, after the recent disruption in Egyptian gas supply, which is expected to increase the financial losses of the NEPCO by 1.2 to 1.4 million JD per day. The number of Syrian refugees that are entering the country are placing pressure on industries, services and infrastructure in Jordan.

35 35 On the 8 th of July, Egypt said it will resume natural gas supplies to Jordan within 10 days after repairing a pipeline in the Sinai Peninsula that was damaged by explosives planted by unidentified militants early last Sunday. Jordan depends on the gas to generate electricity, and if gas supplies are low, Jordan resorts to importing oil at higher prices to meet electricity needs. The recent disruption in Egyptian gas supplies is estimated to increase the financial losses of the NEPCO and raise power generation costs by an average of JD1.2 and JD1.4 million every day. As part of the National Economic Reform Program, the IMF has set target losses for NEPCO in the upcoming years, and the disruption in gas will cause a setback in the performance of NEPCO. Part of the plan is to combat the volatility in the cost of generating electricity by raising electricity tariffs. The government is expected to increase electricity tariffs for industrial and commercial outlets after Ramadan by up to 15%. Moreover, Minister of Energy and Mineral Resources Malek Kabariti on Tuesday said the increase in the electricity tariffs for households will range between 5% and 7.5% on segments that consume between 601 and 1,000 kilowatt-hours (kWh). Egypt to resume natural gas supply to Jordan in 10 days

36 36 New 2 and 3 year government bond yields have begun to increase again, due to low coverage ratios, a delay in the Eurobound due to be released this year, and increasing cost of time deposits on banks. The latest 2 year bond saw a coverage ratio of only 1.10, while the average yield accepted was 6.299%, up from a low of 6.039% earlier this year. Additionally, the latest 3 year bond attained a coverage ratio of only 1.04, while the average yield accepted was 6.686%, up from a low of 6.498% earlier this year. Upward Pressure on Interest Rates

37 37 Moreover, the delay in the Eurbound in the amount of $1-1.5 billion has added extra pressure on local excess liquidity and the government’s ability to maintain a solid buffer for excess reserves. Even though yields on government bonds declined drastically during the year, the weighted average interest rate paid at licensed banks increased continuously throughout the year, reaching 5.53% in May, indicating that markets still see upward pressure on interest rates. The government responded to these factors by injecting more stimulus in the market through an extra weekly repo in the amount of 100 million JD, with all repos now totaling 575 million JD. Upward Pressure on Interest Rates

38 38 Amman Stock Exchange For the period 07/07 – 11/07 ASE free float shares’ price index ended the week at (1953.5) points, compared to (1966.8) points for the last week, posting a decrease of 0.67%. The total trading volume during the week reached JD(31.9) million compared to JD(41.1) million during the last week, trading a total of (26.5) million shares through (11,204) transactions The shares of (163) companies were traded, the shares prices of (48) companies rose, and the shares prices of (61) declined. Top 5 losers for the last week Stock % chg Siniora Food Industries (21.89%) Irbid District Electricity (16.89%) Arab Company For Investment Projects (16.36%) Arabia Steel Pipes Manufacturing (12.16%) Specialized Trading & Investment (11.94%) Top 5 gainers for the last week Stock % chg Alshamekha For Realestate And Financial Investments 14.15% South Electronics 12.50% The Jordan Pipes Manufcaturing 10.61% Philadelphia Pharmaceuticals 10.53% Alentakeya For Investment & Realestate Development Com. Plc. 8.89%

39 39 Local Debt Monitor Latest T-Bills  As of July 14, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(2,536) million. Yield (%)Size - millionMaturity DateIssue Date3 months T-Bills 2.898%5014/03/201214/12/201129/ %5012/03/201212/12/201128/2011 Yield (%)Size - millionMaturity DateIssue Date6 months T-Bills 3.788%5014/08/201214/02/201202/ %5023/07/201223/01/201201/ %5008/06/201208/12/201127/2011 Yield (%)Size - millionMaturity DateIssue Date9 months T-Bills 4.285%7504/12/201204/03/201205/ %7529/11/201229/02/201204/ %7522/11/201222/02/201203/2012 Coupon (%)Size - MillionMaturity DateIssue Date1 year T-Bills 5.345%7515/04/201415/04/201304/ %7026/02/201426/02/201303/ %5014/02/201414/02/201302/ %7027/01/201427/01/201301/2013

40 40 Local Debt Monitor Latest T-Bonds Issues Coupon (%)Size - millionMaturity DateIssue Date2 years T-Bonds 6.299%5008/07/201508/07/2013T %5024/06/201524/06/2013T %5028/04/201528/04/2013T2613 Coupon (%)Size - millionMaturity DateIssue Date3 years T-Bonds 6.686%5002/07/201602/07/2013T %5018/06/201618/06/2013T %5029/05/201629/05/2013T3213 Coupon (%)Size - millionMaturity DateIssue Date4 year T-Bonds 7.246%37.515/01/201615/01/2012T %5016/11/201516/11/2011T4211 Coupon (%)Size - millionMaturity DateIssue Date5 years T-Bonds 7.692%5011/07/201811/07/2013T %5010/06/201810/06/2013T3413 Coupon (%)Size - millionMaturity DateIssue DatePublic Utility Bonds 7.786%2030/06/201830/06/2013PB59 (Water Authority) 7.703%1213/06/201813/06/2013PB58 (Water Authority) 7.684%1506/06/201806/06/2013PB57 (Water Authority) 7.966%2029/07/201529/07/2012PB005 (Housing & Urban Development)

41 41 Prime Lending Rates

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