DOI: https://doi.org/10.36347/sjebm.2026.v13i06.009

Pages: 343-357

Jordan's financial system, dominated by the bank sector, faces chronic exchange-rate pressures, imported inflation and external vulnerabilities, however, the evidence of the combined impact of exchange-rate volatility and inflation on private-sector credit allocation is patchy. This study analyzed financial sector performance in Jordan over the period 1980-2024, measuring it by the dependent variable: Domestic credit to the private sector and controlling for some of is important determinants: Interest rates, money supply, GDP growth, and trade openness. After testing the bounds using ARDL methodology, the study identified that the money supply, inflation and interest rates are significant contributors in the long-run effects on credit allocation in the private sector, whereas exchange rate and exchange rate volatility are significant negative long run determinants. The error correction term confirmed a 38.4% annual adjustment speed towards long run equilibrium, while Granger causality tests showed unidirectional causality between exchange rate volatility, inflation and financial sector performance from financial sector performance to exchange rate volatility and inflation and macroeconomic controls. The results illustrate that monetary authorities should focus on exchange-rate stabilisation and inflation containment to affect the sustainability of financial intermediation, while the original contribution is the development of the first truly comprehensive empirical framework which captures the relationship between exchange-rate uncertainty, inflationary pressure and credit performance in Jordan and being fully econometrically validated.