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Interest Rate Monitor July 21, 2013. 2 Brief Overview  Trade deficit decrease by 2.6% in the first 5 months of the year Trade deficit decrease by 2.6%

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Presentation on theme: "Interest Rate Monitor July 21, 2013. 2 Brief Overview  Trade deficit decrease by 2.6% in the first 5 months of the year Trade deficit decrease by 2.6%"— Presentation transcript:

1 Interest Rate Monitor July 21, 2013

2 2 Brief Overview  Trade deficit decrease by 2.6% in the first 5 months of the year Trade deficit decrease by 2.6% in the first 5 months of the year 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 further as Bernanke again emphasizes that the Fed is in no hurry to withdraw its monetary-policy support Eurozone: Bond market remain calm despite increased political tensions within the periphery UK: BOE minutes of meeting show no sign of further QE, with a shift towards forward guidance, as economic data point to stronger recovery Major Indices: US stocks give back Bernanke gains Commodities and Currencies: Gold up 5% this month Central Bank Meeting Calendar Interest Rate Forecast The Week Ahead Egypt: Foreign reserves increase to $20bn after GCC aid GCC News Highlights GCC interbank rates Comparative MENA Markets China: GDP growth slowdown accelerates, and government starts first steps to liberalizing financial markets

3 3 International

4 4 Treasuries capped a second consecutive weekly yield drop as markets digested signs that the Fed is in no hurry to withdraw its monetary-policy support U.S. Treasuries prices rose on Friday as disappointing earnings from technology giants Google and Microsoft weighed on stocks and rekindled safe-haven bids for bonds, pushing benchmark yields to two-week lows. Moreover, Fed Chairman Ben Bernanke reassured investors on several occasions over the past week that the central bank is in no rush to pull back on buying bonds. After soaring to a 23-month peak of 2.756% on July 8, the benchmark 10-year note's yield fell to 2.49%, down 10 basis points on the week.

5 5 Ben Bernanke emphasized in his 2-day Congressional testimony that monetary policy will not be tighter for the foreseeable future and that it's too early to tell when tapering will begin. Bernanke again tried to draw the distinction between paring back bond purchases and raising interest rates, implying that policy will remain accommodative even if the Fed ends quantitative easing since rates will remain near zero. He also said that it was too early to say when the first reduction in bond buying will happen. Bernanke said the Fed wants to see sustainable improvement in labor markets as it weighs reducing bond purchases. The Fed’s asset purchases depend on economic and financial developments, if economic data turn out to be worse than the Fed’s forecast, the purchases can go up, conversely, if data show marked improvement then tapering might occur faster than previously outlined. Bernanke had laid out a timeline at a June 19 news conference that has the Fed reducing its monthly bond purchases later this year if the economy improves the way the Fed expects, and ultimately end the program by mid-2014. Nevertheless, Mr. Bernanke seemed to emphasize that headwinds for the economy and tepid inflation might keep the easy-money policies in place longer than the Fed indicated last month. Bernanke’s testimony: no "preset course" for the Fed's $85 billion- a-month bond-buying program

6 6 Meanwhile, Bernanke played down Wednesday the unemployment rate's weight in the central bank's calculation of when to start raising short-term borrowing costs. Since last December, the Fed has been saying short-term interest rates—now near zero—won't go up at least until the jobless rate drops below 6.5%, and as long as inflation stays near 2%. But Mr. Bernanke suggested the Fed might keep rates near zero long after the jobless rate, which was 7.6% in June, falls below that 6.5% threshold. It is a point he has made before, but he placed new emphasis on it in the first of two days of congressional testimony about the economy and monetary policy. If very low inflation accompanies a drop in unemployment, Mr. Bernanke said, the Fed might feel less urgency about pulling back on cheap credit. Moreover, the jobless rate may continue to fall partly because people are leaving the labor force, which means they are no longer looking for work and aren't counted as unemployed. In this case, Mr. Bernanke said, the Fed might disregard a falling jobless rate as a misleading indicator of the economy's vigor and keep rates low even after the rate falls below 6.5%. Economic headwinds and tepid inflation might keep easy-money policies in place longer than expected

7 7 Meanwhile, Mr. Bernanke Thursday said recent financial tightening which is associated with the rise in interest rates is "unwelcome". Laying out several reasons for the recent backup in rates, Mr. Bernanke said one likely culprit is the unwinding of "leveraged and perhaps excessively risky" positions by investors lulled by the Fed's ultra- easy money policies. "It's probably a good thing to have that happen, although the tightening that's associated with that is unwelcome," Mr. Bernanke told members of the Senate Banking Committee. Fed officials were jarred four weeks ago by the sharp market reaction to the central bank's tentative timetable for winding down the bond-buying program. Stocks initially fell, though they have recovered, and interest rates shot up. Mr. Bernanke also said Thursday that at least part of the interest-rate spike in recent weeks happened because investors misinterpreted what he was trying to say at that news conference. In other news, global finance chiefs sought to reinforce the global economic recovery by promising “carefully calibrated” policies that won’t spook markets. The Group of 20 nations heeded calls from emerging-market countries to guard against shockwaves when U.S. growth is secure enough for the Federal Reserve to cut back on its bond buying, according to a statement issued after their meeting in Moscow Friday. Bernanke says recent financial tightening 'unwelcome'

8 8 U.S. consumer prices in June posted their sharpest rise in five months, a pickup in inflation that could give Federal Reserve officials more confidence about scaling back their stimulus. After tepid springtime inflation readings, the consumer-price index advanced a seasonally adjusted 0.5% in June, the Labor Department said Tuesday. The gain, led by a sharp increase in gasoline prices, was slightly larger than analysts expected. Consumer prices are up 1.8% from a year earlier. Excluding the volatile food and energy categories, prices rose a milder 1.6% over the past year. Both figures are still shy of the Fed's 2% target. Fed policy makers are closely monitoring inflation measures. Tepid inflation has led some officials to argue for delaying the curtailment of stimulus. Separately, U.S. industrial production rose in June as factories built more autos and machinery, a sign that businesses and consumers may be pulling the sector out of its spring slump. Industrial output increased a seasonally adjusted 0.3% last month. US inflation accelerated the most in five months

9 9 America is pulling out of its economic malaise, slowly but surely, according to the Moody's Investors Service rating agency. Moody's has raised its outlook on U.S. debt to stable, shedding the negative outlook that it has maintained for nearly two years. The move reflects a decline in the U.S. budget deficit, which is expected to continue to shrink over the next few years, in conjunction with a moderately improving U.S. economy, Moody's said in its report released late Thursday. Moody's also affirmed its top rating -- Aaa -- for the U.S. government, noting that the nation's "debt trajectory is on track to meet the criteria laid out in August 2011 for a return to stable outlook." The rating agency referred to an estimate from the Congressional Budget Office that the budget deficit for the 2013 fiscal year is expected to decline to 4% of GDP from its 2012 level of 7%. The U.S. gross domestic product rose at a 1.8% annual rate during the first quarter of the year, which is anemic, but still positive. Moody’s upgrades US credit outlook

10 10 Consumers moderated their spending in June, pointing to a weaker US economy in the second quarter. Retail sales grew a softer-than-expected 0.4% last month, the government said Monday. If purchases of cars and gasoline are excluded—these purchases tend to be volatile—spending actually dropped 0.1%, the first decline in a year. The June report suggests consumers remain cautious about buying anything other than basics four years into the recovery. Consumer spending, which drives about two-thirds of the demand in the economy, has powered much of the nation's growth this year but remains much weaker than in past recoveries. A string of lukewarm economic data has led economists to downgrade their estimates for growth between April and June, with many now expecting growth to fall below 1%. Yet economists are hoping that the overall economy will pick up in the second half of the year. Spending could pick up in coming months. Rising home prices and this year's rally in the stock market are making some Americans more confident about the economy and willing to spend. Job growth has picked up in recent months, while Americans' paychecks are also starting to grow, albeit slowly. Recent economic data point to downside risks: US retail sales disappoint

11 11 Construction of new homes fell sharply in June, highlighting risks to the sector's recovery from rising mortgage rates and supply constraints. Housing starts declined 9.9% in June from a month earlier to a seasonally adjusted annual rate of 836,000 units, the Commerce Department said Wednesday. Building permits, a key measure of future construction activity, fell by 7.5%. The readings were much worse than expected, with most economists forecasting modest gains in both categories. But the decline in housing starts was primarily driven by a 26% drop in multifamily housing, a category that has traditionally been volatile and has lately shown signs of overbuilding. Starts for single-family homes, which account for the largest share of activity, fell by 0.8%. Single-family permits rose 0.1%. The housing sector has been strengthening in recent months as low prices and steady employment gains have fueled stronger demand. The rebound has been providing key support to the U.S. economy, helping to offset public-sector budget cuts and a struggling manufacturing sector hit by weak overseas demand. Recent economic data point to downside risks: Signs that that the recovering housing sector might be in trouble

12 12 Peripheral concerns due to political instability continue to be the highlight of the week Political instability continues within the euro area’s periphery. Governments in Portugal and Greece have buckled under the pressures of international bailout programs. An embezzlement scandal this week engulfed Mariano Rajoy, Spain’s prime minister. Italy’s coalition remains fragile. Such crises, however, have not blown up into the sort of eurozone-wide systemic threat that previously sent financial markets reeling. Bond markets remained somewhat calm, as investors seem to believe that the European Central Bank will act as a backstop if an existential eurozone crisis re-erupted. Despite political tensions in Madrid and Rome, Spanish 10-year yields, which move inversely to prices, fell back below 4.7% this week. Spain’s 10-year yields fell 10bps, while Italy’s fell 7 bps.

13 13 Portugal is not out of the woods, as political turmoil escalates The good news was that Portugal's government survived a vote of no confidence on Thursday, but the country was not out of the woods. The socialist party, which backed the vote of no-confidence on Thursday, still had to come to an agreement with the two ruling coalition parties over €4.7 billion in spending cuts and austerity measures to keep the country's bailout on track until mid-2014. However, Portugal's three main parties failed Friday to agree on a "national salvation pact" to keep the country's international bailout on track, raising the possibility that the president could call immediate new elections. The latest twist in a political crisis that has dragged on for weeks will likely once again spook investors. It will also create a big problem for the country's lenders—the EU and the IMF—which had hoped to use Portugal as a success story for its austerity prescription. But Portugal has seen domestic support for its austerity program wane after two years of relative calm. Earlier this month, two ministers resigned amid increasing pressure to soften the program, which has been blamed for a three-year recession and a jump in unemployment to more than 17%. The yield on Portugal's benchmark 10-year bond fell back below 7% on Friday, after the vote on Thursday. But the latest turmoil could reignite investor fears and push yields back up nest week. In separate news, the Greek parliament passed the austerity bill needed to release the next EU/IMF tranche. The cuts, which were demanded by the country’s creditors in return for bailout loans, include thousands of public sector job losses. Around 12,500 staff will be subject to involuntary transfers, while 15,000 layoffs are likely by the end of next year.

14 14 Eurozone’s prospect for growth look bleak Exports from the 17 countries that share the euro slumped in May, as did imports, an indication that the currency area's longest postwar contraction may have continued into a seventh straight quarter. The EU's statistics agency said Tuesday that adjusted for seasonal factors, exports from the eurozone to the rest of the world fell 2.3% from April, while imports were down 2.2%, a sign of weak domestic demand. It was the second straight month in which exports fell sharply, and the largest month-to-month fall since June 2011. With rising unemployment, low wage growth and government cutbacks damping domestic demand, rising exports are essential if the eurozone is to return to growth. But with growth in many other parts of the global economy faltering, a significant pickup in overseas sales appears unlikely in the months ahead. The eurozone economy shrank in the first quarter of the year as exports declined. Eurostat won't release its first estimate of gross domestic product in the three months to June until mid-August, but business surveys and economic data releases suggest output fell again. The IMF last week said it expects the currency union's economy to contract this year by 0.6% before a 0.9% rebound next year. It also urged the ECB to cut policy rates and use other tools to spur lending.

15 15 BOE was unanimous on stimulus at July meeting The Bank of England's nine monetary policy makers all voted to keep the central bank's existing stimulus programs on hold earlier this month, according to minutes released Wednesday. Even though the vote at the Monetary Policy Committee's meeting on July 3 and 4 produced a unanimous result—the first since October 2012—some members still believed more stimulus would be needed. Paul Fisher and David Miles had previously called for an increase in asset purchases. But they wanted to see what options besides asset purchases will be available for boosting the economy under the leadership of Mr. Carney, who took the reins at the BOE at the start of July. Those options are likely to include forward guidance— explicit communication by the bank on how long it expects to keep interest rates and asset purchases at the current levels. The pound rose on currency markets following the release of the minutes, suggesting traders interpreted the vote as a signal the U.K.'s central bank is unlikely to expand its bond- purchase program.

16 16 Markets now await Carney’s forward guidance Wednesday's minutes suggested there were three camps within the committee at July's meeting. In addition to those wanting stimulus now but undecided on what form it should take, others were open to stimulus at some point in the future if the recovery runs out of steam, while a third group saw little further need for asset purchases given their expectation that the economy will continue to recover, as well as a fear that inflationary pressures will mount. Jobs figures released Wednesday will likely strengthen the resolve of those opposed to more stimulus on the grounds that the economy is growing. The number of Britons claiming unemployment benefit fell by 21,200 in June—the biggest fall since June 2010. A wider measure of unemployment showed the number of Britons out of work fell 57,000 in the three months to May, although the unemployment rate was unchanged at 7.8%. In August, the MPC's members will decide on a more formal framework for giving guidance on likely future policy, potentially similar to the forward guidance implemented by Mr. Carney in his former role heading the Canadian central bank. The IMF in its final surveillance report into the UK economy, gave some backing for Canrey’s forward guidance, but Fund staff warned that that “it is unlikely that the forward guidance by itself could instigate a recovery”. The Fund again emphasized that the UK remains a long way from a strong and sustainable recovery.

17 17 U.K. retail sales increase, a positive indication for Q2 GDP growth U.K. retail sales rose sharply in the second quarter of the year, boosted by a stronger housing market and adding to evidence that an economic recovery that started in the first quarter gained momentum between April and June. UK retail sales rose by 0.2% in June from the month before, helped by department store discounts. The Office for National Statistics said the figure meant sales were up 2.2% from a year earlier. June's modest rise compares with May's strong growth of 2.1%, but will add to hopes of UK economic revival. The rise in consumer spending comes at a time when real wages are still falling, with consumer prices rising more rapidly than salaries. But a pickup in house prices and the lower cost of repaying mortgages appear to be supporting consumer spending. Forecasts are for gross domestic product to increase 0.6% from the first quarter, when it rose 0.3%. The Office for National Statistics will publish the data, a first estimate, on July 25. Growth is forecast by economists to be led by services, the largest part of the economy, with recent reports suggesting rising house prices and falling unemployment are spurring consumer confidence.

18 18 UK inflation accelerates in June U.K. consumer price inflation accelerated in June, worsening a squeeze on consumer spending that threatens the country's economic recovery. The annual inflation rate climbed to 2.9% in June from 2.7% in May, the Office for National Statistics said Tuesday. That is the highest rate since April 2012. The BOE targets inflation at 2.0% over the medium term In its most recent set of economic forecasts in May, the BOE predicted the inflation rate would continue rising until the middle of this year, before falling to around its target rate in 2015. The relatively high U.K. inflation rate has been caused in part by growth in university tuition fees and regulated energy tariffs. In concert with record-low rates of wage growth, it has resulted in a long-running squeeze in workers' disposable income that has throttled consumer spending and dented the economy's prospects. That squeeze is likely to persist calling into question the sustainability of the country’s recovery.

19 19 China’s GDP slowdown accelerated in Q2 Growth in China, the world's second-biggest economy, has been slowing since 2007's peak, but that slowdown has accelerated recently. China's second-quarter gross domestic product released early Monday showed the economy expanded 7.5% from the year earlier, putting the economy on track for its weakest year since the late 1990s. Weighed down by declining exports and faltering investment, it was the second consecutive quarter of weakened growth, confirming that a rebound at the end of last year had been shortlived. China grew 7.7% year on year in the first quarter, down from its7.8% pace last year. There is a real risk that China will fall below the government’s target of 7.5% growth in 2013. It would be the first time since the Asian financial crisis 15 years ago that the Chinese government has missed its annual growth rate. China is trying to pull off a tricky rebalancing. It hopes to reshape its economy to be less reliant on construction and heavy industry, and more reliant on consumer spending.

20 20 Economic data continue to point to slowdown To boost domestic consumption, the government has raised minimum wages to put more money in people's pockets and loosened controls on interest rates to give household savers better returns. It has tilted tax and land incentives toward industries that cater to consumption, such as food and autos, and away from heavy industries suffering from overcapacity, such as steel making and ship building. China also said Monday that industrial output rose 8.9% in June from a year earlier, compared to a forecast of 9.1% and lower than May's 9.2% growth. While not far from expectations, the data showed that the manufacturing industry is increasingly struggling with the decline in exports. Fixed-asset investment also disappointed slightly, with 20.1% growth in the first half compared to a forecast of 20.2%. Consumer spending was a bright spot, as retail sales accelerated to 13.3% in June, compared with 12.9% growth in May. But disposable income growth for urban households slowed, to 6.5% year-on-year in the first half, down from 9.7% growth in the first half of 2012. China's economic growth is still strong, compared with much of the world. But recent single-digit expansion rates are a notable comedown from a 14.2% peak in 2007.

21 21 China takes first step to liberalize financial markets China offered its strongest signal yet of worry over slowing growth and its commitment to financial reform, as it loosened a key control over its banks. China's central bank said late Friday that beginning on Saturday it will scrap controls on lending interest rates and let financial institutions price loans by themselves. The move could let some borrowers tap cheaper loans at a time when China's economy threatens to slow to a 20-year low and as corporate and local government borrowers struggle with a growing burden of interest payments. Under China's banking system, the People's Bank of China sets guidelines for interest rates as well as deposit rates—a system that has kept state-run banks flush with cash and ready to fund the big spending projects that have long fueled China's growth. The change, effective Saturday, eliminates a limit set at 30% below the current 6% benchmark, according to a PBOC statement today. The shift came after a cash squeeze in money markets curbed a record expansion in China’s credit. The nation’s overnight interbank rate jumped to a record 12.85% on June 20 as the PBOC withheld cash and restricted its communication, spurring speculation policy makers wanted to expose banks using short-term funds too aggressively for longer-term investments. Nevertheless, the move leaves on the to-do list more difficult but rewarding reforms, such as liberalizing the interest rate on bank deposits—an important move toward increasing income for China's households and driving higher consumption.

22 22 U.S. stocks give back Bernanke gains following lackluster corporate results

23 23 Gold up 5% this month as fears of a rapid QE exit have eased

24 24 Major Interest Rate Forecasts

25 25 The Week Ahead,,,

26 26 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% September 4Bank 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 :

27 27 Regional

28 28 Egypt's foreign reserves reach around $20 billion in Arab aid Egypt’s Treasury yields continued to fall by as much as 0.50% as Egypt’s central bank governor stated that it’s FX reserves reached around $20 billion as Gulf countries pledged $12 billion in aid in the form of grants, central bank deposits and oil products. According to the governor, the rise in FX reserves came after the transfer of $3 billion aid package that was pledged by the UAE. The fuel grants promised by the three countries will also relieve the pressure on the foreign reserves. Egypt has been suffering a high cost of subsidies for oil and energy products since the beginning of the 2011 unrest, as its government spends annually 20% of the GDP on fuel subsidies. In February, Egypt's foreign reserves dropped to an alarming level of 1$3.5 billion. With aids from Qatar, Turkey and Libya, the reserves went up to $16.04 billion at the end of May, but fell to $14.9 billion at the end of June. FX reserves stood at about $36 billion in January 2011, right before the eruption of protests that ousted former President Hosni Mubarak, and had been on a drastic decline since then. Foreign Aid (US$ bn) Grant Central Bank Deposits Oil Products Saudi Arabia1.02.0 Kuwait1.02.01.0 UAE1.02.0- Total3.06.03.0 Breakdown of grants and aid: Source: Bloomberg

29 29 Egypt’s new finance minister says no to IMF aid In light of the inflow of aid pledged by the Gulf countries, Egypt’s new finance minister Ahmad Galal stated the Egypt will not be needing an IMF loan soon. Earlier this year, Egypt were seeking a much needed $4.8 billion loan from the IMF, but was halted due to requirements on lifting subsidies on certain commodities, fearing social unrest. The new minister states that the aid from Arab states will carry Egypt through its transition period, and has put IMF negotiations on hold. In other news, ratings agency S&P’s maintained Egypt’s long and short-term sovereign credit ratings on Egypt at CCC+/C with a “stable outlook” last week, noting that the source of this reassurance is the pledged financial aid by Gulf countries. It said: “these funds reduce the pressure on the balance-of- payments and afford officials some time to address Egypt’s economic and political challenges, which was the reason for the downgrade in last May.” Source: Bloomberg

30 30 GCC Economic Highlights: Qatar's CPI rises by 3.4% YoY The Ministry of Development Planning and Statistics (MDPS) has released the consumer price index (CPI) for the month of June, showing a 0.5% increase compared to May of 2013, and a 3.4% increase compared to June 2012. A comparison of the CPI of June 2013 with that of the previous month by major groups shows increases in most groups. Transport and communications rose by 1.2%, entertainment, recreation and culture by 0.9% and food, beverage and tobacco by 0.8%. However, prices declined by 1.0% in miscellaneous goods and services. Comparing the index in June 2013 to June 2012, we find that increases were recorded in all groups except miscellaneous goods and services, where prices declined by 2.0%. The highest increases recorded in various groups include: (entertainment, recreation and culture) 8.1%, (rent, fuel and energy) 6.8% and (transport and communications) 1.1%. Source: Trading Economics

31 31 GCC Economic Highlights: Saudi Inflation down to 3.5% YoY Inflation in Saudi Arabia reversed a steady rise for many months and declined in June for the fourth consecutive month this year, driven by falling core inflation and food prices. Inflation in the world's largest oil exporter eased to 3.5% in June compared with 3.8% in May. The drop was driven by a slow down in food inflation to 6.1% year-on-year (0.1% month-on-month) in June compared with 6.4% (0.2% month-on-month) in May. On a monthly basis, prices slightly increased by 0.2% compared with 0.1% in May. Core inflation was mainly driven by the restaurant and hotel group (down 4.4% year-on-year) followed by furnishings, household equipment and maintenance (down 2.8% year-on- year). However, inflation is expected food to increase in July due to the strong demand in the fasting month of Ramadan while strong housing demand will keep the upside risk to rental inflation. Source: Trading Economics Source: Arab News

32 32 GCC Economic Highlights: Saudi Arabia Real GDP growth slows sharply Saudi Arabia’s economy, the Arab world’s biggest, slowed in the first three months this year for the second straight quarter as oil output shrank, registering the slowest rate of expansion since Q1 of 2011. Gross domestic product grew at an annual rate of 2.1%, according to official data released. The primary cause of the economic slowdown was a 6.3% contraction in the mining and quarrying sector (which is dominated by oil output). Meanwhile, the slowdown in the construction and wholesale and retail trade sectors needs to be viewed in the context of an exceptionally strong performance previously. The construction sector still grew at a healthy 6.7%, with retail and wholesale trade expanding at an even quicker 6.9% (down from 8.9% in the final quarter of 2012). Although the decline in the pace of economic expansion had been expected, following the fall in oil output in the first few months of this year, the extent of the slowdown came as something of a surprise. With the exception of government services, every sector in the economy witnessed a lower year-on-year rate of expansion in the first quarter compared with the last three months of 2012.

33 33 GCC interbank rates Source: Bloomberg

34 34 Comparative MENA Markets For the period 14/07 – 19/07

35 35 Locally

36 36 Last week, the Department of Statistics released figures showing that Jordan’s trade deficit decreased by 2.60% during the first 5 months of the year, compared to the same period last year. The trade deficit stood at 3,962.6 million JD for the first 5 months of this year, compared to 4,070.4 million JD for the first 5 months of 2012. Breaking down the deficit, we find that exports fell by 0.2% and imports fell by 1.8%. Exports fell to 2,284.8 million JD from 2,289.6 million JD for the time period, while imports fell to 6,247.4 million JD from 6,360.0 million JD for the same time period. Looking at the drop in imports, we find that the oil bill fell by 33.2%, to reach 1,476.8 million JD, compared to 2,211.2 million JD for the first 5 months of this year compared to last year. Although oil imports fell by 730 million JD in the first 5 months compared to last year, imports only fell by around 100 million JD for the same time period, indicating that non oil-imports increased by more than 600 million JD, probably due to the influx of Syrian refugees. Trade deficit decreased by 2.6% during first 5 months

37 37 The table on the right shows a breakdown of Jordan’s monthly oil bill. Overall, the drop in the numbers indicate that Egyptian gas levels are averaging higher than the past year, which will reflect positively on the government’s budget deficit and NEPCO losses. Comparing Brent oil prices in May 2012 to May 2013, we find that the average barrel price fell by $7, which could have contributed to the drop in the oil bill in May. However, given the recent disruption in Egypt’s gas supply, we expect Jordan’s oil bill to increase in the month of June compared to June 2012, unless significant developments on the pipeline occurs. Moreover, comparing Brent oil prices in June 2012 to June 2013, we find that the average barrel price increased $7.41, which will add more pressure on June’s bill. This will add pressure on Jordan’s FX reserves as and its widening budget deficit. Trade deficit decreased by 2.6% during first 5 months 20122013 Nominal Change January488.7262.8 -225.9 February334.0387.7 53.7 March482.9358.9 -124 April560.2213.5 -346.7 May345.4253.9 -91.5 Total2,211.21,476.8 734.4

38 38 Amman Stock Exchange For the period 14/07 – 18/07 ASE free float shares’ price index ended the week at (1944.0) points, compared to (1953.5) points for the last week, posting a decrease of 0.49%. The total trading volume during the week reached JD(32.0) million compared to JD(31.9) million during the last week, trading a total of (32.0) million shares through (12,248) transactions The shares of (162) companies were traded, the shares prices of (48) companies rose, and the shares prices of (69) declined. Top 5 losers for the last week Stock % chg Alshamekha For Realestate And Financial Investments (18.18%) Jordan Phosphate Mines (15.83%) International For Medical Investment (13.51%) Arab Company For Investment Projects (13.04%) Arab Electrical Industries (12.35%) Top 5 gainers for the last week Stock % chg Specialized Trading & Investment 18.64% Arab Investors Union Co. For Real Estates Developing 16.13% Specialized Investment Compounds 12.12% Middle East Diversified Investment 11.88% South Electronics 11.11%

39 39 Local Debt Monitor Latest T-Bills  As of July 21, the volume of excess reserves, including the overnight window deposits held at the CBJ JD(2,657) million. Yield (%)Size - millionMaturity DateIssue Date3 months T-Bills 2.898%5014/03/201214/12/201129/2011 2.844%5012/03/201212/12/201128/2011 Yield (%)Size - millionMaturity DateIssue Date6 months T-Bills 3.788%5014/08/201214/02/201202/2012 3.433%5023/07/201223/01/201201/2012 3.232%5008/06/201208/12/201127/2011 Yield (%)Size - millionMaturity DateIssue Date9 months T-Bills 4.285%7504/12/201204/03/201205/2012 4.229%7529/11/201229/02/201204/2012 4.169%7522/11/201222/02/201203/2012 Coupon (%)Size - MillionMaturity DateIssue Date1 year T-Bills 5.535%5021/07/201421/07/201305/2013 5.345%7515/04/201415/04/201304/2013 6.750%7026/02/201426/02/201303/2013 6.750%5014/02/201414/02/201302/2013

40 40 Local Debt Monitor Latest T-Bonds Issues Coupon (%)Size - millionMaturity DateIssue Date2 years T-Bonds 6.299%5008/07/201508/07/2013T3813 6.129%5024/06/201524/06/2013T3613 6.039%5028/04/201528/04/2013T2613 Coupon (%)Size - millionMaturity DateIssue Date3 years T-Bonds 6.745%5017/07/201617/07/2013T4013 6.686%5002/07/201602/07/2013T3713 6.546%5018/06/201618/06/2013T3513 Coupon (%)Size - millionMaturity DateIssue Date4 year T-Bonds 7.246%37.515/01/201615/01/2012T0312 6.475%5016/11/201516/11/2011T4211 Coupon (%)Size - millionMaturity DateIssue Date5 years T-Bonds 7.692%5011/07/201811/07/2013T3913 7.561%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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