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EDITOR IN CHIEF- ABDULLAH BIN SALIM AL SHUEILI

Oman may raise rates to check Fed impact

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By Samuel Kutty — MUSCAT: Dec. 17: Interest rate in the Sultanate is likely to see a rise following last week’s decision by the US Federal Reserve and other GCC countries to hike rates. The central banks of Saudi Arabia, UAE, Kuwait, Bahrain and Qatar have already increased their benchmark rates to avoid any kind of a speculation that can have downward pressure on their respective currencies. According to analysts, Oman may also follow suit as the rial is pegged to US dollar. “In principle the rate should be raised as reflection of the Fed decision,” said Lo’ai Bataineh, Chief Investment Officer at Oman Arab Bank.


The Fed move followed US dollar index to its highest levels in more than 13 years last week, as the currency rose to its highest since February against most currencies in the world. The Fed now expects the median fed-funds rate to be 1.4 per cent by the end of 2017, reaching 2.1 per cent at the end of 2018 and 2.9 per cent in 2019. The long anticipated Fed move comes after it quietly ended its quantitative easing efforts in October 2015. This effectively ends almost a decade worth of a steady monetary policy that was initiated to fight the ravages of the 2008 financial crisis.


The strengthening of dollar may make Omani rial stronger, and this on the other hand may hinder the efforts to boost growth, opined Lo’ai Bataineh.


The Central Bank of Oman may raise interest rates applied to its certificates of deposits through which changes in interest rates are transmitted to the banking system.


In respect of domestic interest rate structure of conventional banks in Oman, the weighted average interest rate on rial deposits increased from 0.894 per cent in September 2015 to 1.349 per cent in September 2016, while the weighted average lending rate increased from 4.790 per cent to 5.030 per cent during the same period.


The overnight Omani rial domestic inter-bank lending rate increased to 0.403 per cent in September 2016 from 0.217 per cent a year ago.


A stronger currency makes it harder to attract capital. This will also have a negative impact on the country’s non-oil exports.


According to financial experts, pressure on most Gulf currencies eased in recent months thanks to the rebound in the oil prices.


“All governments in the region will try to prevent any impact from a higher US interest rate that will help revive speculation about their currencies,” said a financial expert with a local bank.


Saudi Arabia raised its reverse repurchase rate — the rate at which commercial banks deposit money with the central bank — by the same margin to 0.75 per cent, while UAE central bank raised the rates applied to its certificates of deposits.


Kuwait’s central bank raised its discount rate, used to determine maximum interest rates on dinar borrowing at local banks, by a quarter of a percentage point to 2.50 per cent.


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