Oman's central bank eases curbs to help defrost credit markets

Muscat: The Central Bank of Oman has reduced bank reserve requirements and raised the loan-to-deposit ratio as part of its efforts to defrost credit markets.

The apex bank said it would cut the reserve ratio to five per cent from eight per cent, while also loosening the loan-to-deposit ratio to 87.5 per cent from 85 per cent.

The changes, which will come into effect on January 1, were taken in consideration of the local economic scenario, the CBO said in a statement released late on Sunday.

The meeting was presided over by Dr Ali Bin Mohammad Bin Mousa, Minister of Health and Chairman of the CBO's board of governors. Global financial turmoil has put the brakes on an economic boom in the Gulf region and has discouraged private investors from taking loans to participate in public-private expansion projects because of the high cost of funding.

The CBO, tackling record inflation rates above 13 per cent this year, 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, fighting inflation took a back seat as Gulf governments sought to boost confidence in their banks. Like most of its neighbours in the Gulf region, Oman pegs its currency to the US dollar.

The central bank, which sets interest rates every Monday, cut its repurchase rate by 89 basis points to 1.53 per cent last week ahead of a move by the US Federal Reserve to slash its key interest rate to nearly zero. It has also allocated about $2 billion (Dh7.34 billion) to local banks to provide them with dollar liquidity, while the government set up a 150-million Omani riyal (Dh1,431 million) Market-Maker Fund with the private sector to help stabilise the securities market. The board also approved the CBO's 2009 budget and reviewed its fin-ancial position as at the end of November.

The changes, which will come into effect on January 1, were taken in consideration of the local economic scenario, the CBO said in a statement.