Oman sees pressure on currency

Dubai : Oman's central bank may continue pursuing an accommodative monetary policy for an extended period and is expecting pressure on the currency if the inflation differential to the United States widened further, it said yesterday.

The country needs to keep its monetary policy closely aligned with the US due to its peg to the dollar to avoid excessive pressures on its currency, the Omani riyal.

The country's central bank now faces a challenge over how to support economic recovery while at the same time keep rising inflationary pressures at bay, it said in its annual report.

"Keeping in view the adverse international developments and fragile nature of global recovery, managing recovery in Oman has emerged as the major policy challenge in 2010," the bank said.

"The Central Bank of Oman may continue its accommodative monetary policy for an extended period," it said.

Oman has run an easier monetary policy since the last quarter of 2008 to help the oil-reliant economy face the global financial crisis.

The country has been keeping the rate it uses for draining excess liquidity from the market at 0.04-0.09 per cent at its weekly auctions of deposit certificates, near the lower end of the US benchmark rate range.

The US Federal Reserve's benchmark overnight interest rates are expected to stay in a range of zero to 0.25 per cent for an extended period.

Oman's central bank said it needed to closely watch inflation in the second half of the year as price pressures may increase as commodity prices rise and the economic recovery gathers pace globally.

"Given the sustained consumer demand, there is a potential threat to inflationary pressures in Oman in 2010 in case of a sharp rise in commodity prices in the international markets," the central bank said.