CBO increases repo rate by 25 basis points to 5.25%

The Central Bank of Oman (CBO) on Thursday further increased its repo rate by 25 basis points to 5.25 per cent, following the US central bank’s decision as Omani rial is pegged to the US dollar.

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

The CBO’S rate hike decision was made after the US Federal Reserve on Wednesday increased its key interest rate by another 25 basis points. The sultanate follows a fixed exchangerate regime, and consequently its interest rate is closely aligned with US rates. As a result, the CBO’S repo rate generally moves in tandem with the Fed’s policy rate.

Repo rate is the policy rate that allows commercial banks to borrow short-term liquidity from the 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 25 basis points to 5.25 per cent,' the CBO said in a statement.

The US Federal Reserve slowed its pace of interest rate hikes Wednesday, tempering an aggressive campaign to rein in costs as inflation cools, but signalled the battle is not yet over. The Fed announced a 25 basis points hike to the benchmark lending rate at the end of its twoday policy meeting, taking the rate to a target range of 4.504.75 per cent, according to an AFP report.

The CBO in its statement said that its 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.

‘There are a number of advantages for Oman that are derived from this policy, namely ensuring the stability of the Omani rial, mitigating capital outflow and promoting certainty among investors by removing exchange rate risk,’ the sultanate’s central bank said in its statement.

Following the lead of the US Fed, Oman has raised its key policy rate to 5.25 per cent in eight successive rate revisions in 2022 and 2023.

The global economy has witnessed rising and sustained inflationary pressure and central banks around the world are attempting to address this pressure by hiking interest rates.

‘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,’ the CBO noted.

In the Gulf region, most GCC countries raised their key interest rates by 25 basis points on Wednesday and Thursday, following the US Fed’s decision. As most GCC countries keep their currencies pegged with the US dollar, their monetary policy is generally guided by US Fed policy decisions. As per a Reuters report, the central banks of Saudi Arabia and the UAE both followed the Fed in increasing rates by 25 basis points. The Saudi Central Bank lifted its repo and reverse repo rates to 5.25 per cent and 4.75 per cent, respectively, while the Central Bank of UAE said its base rate would increase to 4.65 per cent effective on last Thursday.

Bahraini central bank also increased its key interest rates by the same 25 basis points. Its one-week deposit facility rate was increased to 5.5 per cent and the overnight deposit rate to 5.25 per cent.

However, Qatar's central bank this time decided to leave rates unchanged and kept its deposit, lending and repo rates at 5.0 per cent, 5.5 per cent and 5.25 per cent, respectively.

CBO has cautioned local banks not to increase lending rates for consumers as there is ample liquidity available in Oman’s financial system