‘Low US interest rates bode well for Oman’s economy’
The US Federal Reserve’s current policy to keep interest rates at low levels would be helpful to fast-track the economic recovery in the sultanate and other GCC countries, according to the Central Bank of Oman (CBO).
The Fed on October 30 reduced the interest rates by a quarter-percentage point for the third time this year. Since Omani rial is pegged to the US dollar, the changes in US interest rates are likely to translate into similar changes in interest rates in the sultanate.
“Monetary easing by the US Fed is a welcome development for Oman. The ensuing decrease in policy rates in Oman and the rest of the GCC countries bodes well to fast-track economic recovery in Oman and the GCC region,” the CBO executive president H E Tahir bin Salim al Amri said in his foreword in the central bank’s Financial Stability Report.
Considering the US Fed’s monetary easing policy in 2019, the policy and retail interest rates in Oman are also expected to follow the suit, the CBO said in the report.
Last year interest rates in Oman increased in tandem with the Fed’s policy rate. Since the beginning of the US monetary policy normalisation towards the end of 2015, the Fed raised its policy rate eight times, half of them occurred in 2018 alone. These interest rate hikes were followed by similar increases in CBO’s repo rate and the Omani overnight interbank rate, the CBO said.
The CBO’s repo rate increased to 2.93 per cent in December 2018 from 1.95 per cent in December 2017. Similarly, the interbank overnight interest rate also increased to 2.14 per cent in December 2018 from 1.26 per cent in December 2017.
The CBO said that the lending and deposit rates also kept hardening in the last three years. Both the weighted-average lending and deposit rates in Oman edged up by 17 basis points and 24 basis points, to reach 5.37 per cent and 1.90 per cent, respectively between December 2017 and April 2019.
The Institute of International Finance (IIF) in a recently released report said that the lower interest rates would help the economic recovery process in the GCC countries. ‘Monetary easing would make borrowing cheaper for investors. Lower interest rates will make credit more available to the private sector and provide a window of opportunity for companies to refinance loans at a lower cost. Despite lower oil prices, liquidity conditions in the region still look healthy,’ IIF said.
According to H E Amri, Oman’s banking sector remained robust with sound asset quality and strong capital buffers. “Banks posted reasonable profits that allowed organic growth, and strengthened capital buffers. The sector remained fairly liquid with both liquidity coverage ratio and net stable funding ratio above the regulatory requirements.”
H E Amri added, “Fed’s monetary policy stance, developments in the trade tensions between China and the US, and geopolitical developments in the region will be the other key flashpoints for financial stability. Nevertheless, our liquidity and solvency stress tests show that the financial institutions in Oman are resilient to any plausible challenges.”