Oman says com­mit­ted to cur­rency peg de­spite cheap oil

The Pak Banker - - BUSINESS -

MUSCAT: Oman is com­mit­ted to main­tain­ing the peg of its cur­rency against the US dol­lar de­spite the drop of oil prices, cen­tral bank ex­ec­u­tive pres­i­dent Hamood San­gour Al Zad­jali said.

"We are com­mit­ted to keep­ing the Omani riyal pegged to the US dol­lar," Zad­jali texted to Reuters in a re­sponse to a ques­tion. He did not elab­o­rate. The plunge of oil prices since mid-2014 has put heavy pres­sure on Oman's state bud­get, caus­ing one-year dol­lar/riyal for­wards to rise as high as 1,000 points this week, their high­est since 2006, as some in­vestors hedged against the risk of an even­tual riyal de­val­u­a­tion. De­valu­ing the riyal could aid state fi­nances by in­creas­ing the lo­cal cur­rency value of oil ex­ports. How­ever, it would also raise the cost of the many im­ports on which Oman de­pends and could shake in­vestor con­fi­dence, so econ­o­mists do not think author­i­ties will aban­don the peg. They note that Oman has main­tained the peg, set in 1986 at 0.3849 rial to the dol­lar, through past pe­ri­ods of ex­treme oil price weak­ness.

On Mon­day, credit rat­ing agency Fitch cut its long-term is­suer de­fault rat­ings for five Omani banks, say­ing the gov­ern­ment had be­come less able to sup­port the bank­ing sys­tem. But Zad­jali noted that af­ter the down­grade, Fitch had left the out­looks for the banks sta­ble, and he said they did not face sig­nif­i­cant fi­nan­cial pres­sures. "Omani banks are in an ex­cel­lent po­si­tion, and well cov­ered fi­nan­cially. They don't need the gov­ern­ment sup­port, and will not be af­fected with the re­cent down­grad­ing," he said.

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