Wednesday, December 06
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CBO hikes rate, cautions banks not to increase borrowing costs for consumers


Muscat – The Central Bank of Oman (CBO) on Thursday raised its repo rate for local banks by 75 basis points to 3.0 per cent, moving with US Federal Reserve as Oman’s currency is pegged to the US dollar.

However, at the same time, CBO cautioned local banks not to increase lending rates for consumers as there is sufficient liquidity available in Oman’s financial system.

Oman’s rate hike decision was made after the US Fed increased its key interest rate by 75 basis points on Wednesday, the fourth rate hike in the last four months.

Oman follows a fixed exchange rate regime, and consequently its interest rate is closely aligned with US rates. As a result, CBO’s repo rate increases in tandem with the Fed’s policy rate.

Repo rate is the policy rate that allows commercial banks to borrow short-term liquidity from CBO as the lender of last resort.

‘After the US Fed’s recent announcement to raise its key policy rate, the Central Bank of Oman increased its repo rate for local banks at the similar rate of 75 basis points to 3.0 per cent. CBO has cautioned banks not to increase the cost of borrowing to consumers given ample liquidity in the system,’ the sultanate’s central bank said in a statement.

With a new 75 basis points hike, the US central bank now has raised its key policy rate to the range of 2.25 – 2.50 per cent with subsequent hikes to follow this year in order to address the prevailing inflation in the US, the CBO stated.

Following the lead of the US Fed, Oman has raised its policy rate to 3.0 per cent in four successive rate revisions this year.

‘The current changes in policy rate have not yet reflected in the retail interest rates. However, a further hike in rates may raise the borrowing costs in Oman,’ CBO warned in its recently released Financial Stability Report 2022.

As GCC states keep their currencies pegged to the US dollar, other GCC central banks also lifted their policy rates by mostly 75 basis points on Wednesday.

The central banks of Saudi Arabia, the UAE, Qatar and Bahrain raised their key rates by 75 basis points to 3.0 per cent, 2.4 per cent, 3.0 per cent and 3.25 per cent, respectively.

Kuwait, the only GCC state that ties its currency to a basket rather than just the US dollar, raised its key rate by 25 basis points to 2.5 per cent, according to a Reuters report.

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