Muscat: The Central Bank of Oman’s (CBO) monetary policy target is to sustain and maintain its fixed exchange rate. This policy is aligned with the structure and nature of the Omani economy.
After the US Fed’s recent announcement to raise its key policy rate, the CBO increased its repo rate for local banks at a similar rate of 75 basis points to 4.50 per cent.
There are several advantages for the Sultanate of Oman that is derived from this policy among which are the following: stability of the Omani Rial, mitigation of capital outflow, and promoting certainty among investors by removing exchange rate risk.
The global economy is witnessing rising and sustained inflationary pressure and as such, central banks in a number of countries are attempting to address this pressure by hiking their respective key policy rates with the objective of reducing lending and by default reducing aggregate demand that in turn would translate into reduced consumption. While higher interest rates are expected to lead to lower inflation, in some cases, as related to consumers in high-income brackets, they could result in higher savings.
Therefore, and in light of such conditions dominating the global market, key policy interest rates were also hiked by central banks in countries that anchor their monetary policy on fixed exchange rate regimes and in a number of other countries that are experiencing similar inflationary pressure.
The US Federal Reserve raised its key policy rate by 75 basis points to the range of (3.75 per cent – 4.00 per cent) with subsequent hikes to follow this year to address the prevailing inflation in the US.
The repo rate is the policy rate that allows commercial banks to acquire short-term liquidity from the Central Bank as the lender of last resort.
The CBO has cautioned banks not to increase the cost of borrowing to consumers given ample liquidity in the system.
