The Central Bank of Oman (CBO) has increased its repo rate for local banks by 75 basis points to 3 per cent.

The move comes after the U.S. Federal Reserve’s recent announcement to hike its key policy rate.

The U.S. Federal Reserve on Wednesday 27 July 2022 raised its key policy rate by 75 basis points to the range of (2.25 – 2.50 per cent) with subsequent hikes to follow this year in order to address the prevailing inflation in the US.

The Central Bank of Oman’s monetary policy objective is to sustain and maintain its fixed exchange rate based on OMR pegged to the US Dollar. This policy is aligned with the structure and nature of the Omani economy.

The policy brings about various advantages for the Sultanate of Oman. These include ensuring the stability of the Omani Rial, mitigating capital outflow and promoting confidence among investors by removing exchange rate risk.

The global economy undergoes persisting inflationary pressure and, as such, central banks in a number of countries are attempting to address this pressure by hiking their respective key policy rates with the objective of reducing lending and, by default, reducing aggregate demand that in turn would translate in reduced consumption.

While higher interest rates are expected to lead to lower inflation, in some cases – vis-à-vis consumers in high-income brackets – they could result in higher savings.

In light of such conditions dominating the global market, key policy interest rates were also hiked by central banks in countries that anchor their monetary policy on fixed exchange rate regimes, as well as and in a number of other countries that are experiencing similar inflationary pressure.

The repo rate is the policy rate that allows commercial banks to acquire short-term liquidity from the Central Bank, being the lender of last resort.

The CBO has cautioned banks not to increase the cost of borrowing to consumers, given the availability of ample liquidity in the system.