Business | Oil & Gas
Oman to pump 27om riyals into banking system
The Central Bank of Oman on Thursady said it had amended bank reserve requirement rules to release 270 million riyals (Dh2.57 billion) into the banking system to help lenders cope with the fin-ancial crisis.
- Reuters
- Published: 23:35 December 4, 2008
Dubai: The Central Bank of Oman on Thursady said it had amended bank reserve requirement rules to release 270 million riyals (Dh2.57 billion) into the banking system to help lenders cope with the fin-ancial crisis.
Policymakers across the Gulf have adopted measures to defrost credit markets to keep their economies moving as Western economies enter recession.
The Omani central bank, tackling record inflation rates above 13 per cent this year, had raised reserve requirements in August to eight per cent from five per cent in an effort to curtail credit growth.
But as the global credit crisis intensified in the following months, fighting inflation took a back seat as Gulf governments sought to boost confidence in their banks by slashing interest rates, guaranteeing deposits and providing emergency funds.
Oman has since "effectively" reduced the reserve requirement back to five per cent to prevent any indirect effects on liquidity from the global credit squeeze, Central Bank Executive President Hamood Sangour Al Zadjali said.
"The central bank decided to effectively reduce the reserve requirement, which as a result injected about 270 million riyals back into the banking system," Zadjali said.
Under new rules, banks are allowed to hold up to three per cent of deposits "in the form of currency held in banks vaults and or investments in certificates of deposit issued by the central bank", he said. The eight per cent official reserve requirement remained intact, he said.
"Since all banks would have cash on hand and almost all banks have interest-bearing central bank CDs as part of their portfolio, it is considered an effective reduction in the reserve ratio," Al Zadjali said.
The central bank chief said there was "no evidence of any major liquidity problem" in Oman, where credit growth hit 52.7 per cent in October.
Still, the central bank allocated about $2 billion to local banks to provide them with dollar liquidity, while the government set up a 150 million riyal market-maker fund with the private sector to help stabilise the country's bourse.
Interbank rates have moderated to less than one per cent from 2.6 per cent in the first week of October, Al Zadjali said.
"The year 2008 as a whole... could end up with very high growth in credit, even if one presumes some moderation in November and December," he said.
Inflation - which has almost doubled in the last year - could "moderate significantly" in 2009 as price pressures decline in developed countries, food and non-oil commodity prices ease and the US dollar appreciates, he added.
"These favourable effects could be imported to Oman, and thereby create sobering influence on the inflation," Al Zadjali said. "Because of the fall in oil prices, despite fiscal stabilisation, there could be some moderation in domestic demand, which may ease pressure on supply constraints, helping thereby to improve the inflation situation."
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