Borrowing costs

CBO hikes rate, warns banks not to raise borrowing costs for consumers

Muscat – The Central Bank of Oman (CBO) on Thursday raised its repo rate for local banks by 75 basis points to 3.0%, moving with the US Federal Reserve as Oman’s currency is pegged to the dollar American.

However, at the same time, the CBO has warned local banks not to raise lending rates for consumers as there is enough liquidity available in Oman’s financial system.

Oman’s rate hike decision came after the U.S. Fed raised its key rate by 75 basis points on Wednesday, the fourth rate hike in the past four months.

Oman follows a fixed exchange rate regime and therefore its interest rate is closely aligned with US rates. As a result, the CBO’s repo rate rises alongside the Fed’s key rate.

The repo rate is the policy rate that allows commercial banks to borrow short-term cash from CBO as a lender of last resort.

“After the recent announcement by the US Fed to raise its key rate, the Central Bank of Oman raised its repo rate for local banks to the similar rate by 75 basis points to 3.0%. The CBO has warned banks not to increase the cost of borrowing for consumers given the abundance of liquidity in the system,’ the sultanate’s central bank said in a statement.

With another 75 basis point hike, the US central bank has now raised its key rate to the 2.25-2.50% range with further hikes to follow this year to address prevailing inflation. in the United States, the CBO said.

Following the lead of the US Fed, Oman has raised its policy rate to 3.0% in four successive rate reviews this year.

“Current policy rate changes have yet to be reflected in retail interest rates. However, a further rate hike could increase borrowing costs in Oman,’ the CBO warned in its recently released 2022 Financial Stability Report.

As GCC states keep their currencies pegged to the US dollar, other GCC central banks also raised policy rates by 75 basis points on Wednesday.

The central banks of Saudi Arabia, the United Arab Emirates, Qatar and Bahrain raised their policy rates by 75 basis points to 3.0%, 2.4%, 3.0% and 3.25%, respectively .

Kuwait, the only GCC state that pegs its currency to a basket rather than just the US dollar, raised its benchmark rate by 25 basis points to 2.5%, according to a Reuters report.