Oman refuses to cut interest rates

Sultanate becomes third Gulf Arab oil producer with currency pegged to dollar not to follow US rate cut.

Oman held back from lowering interest rates, becoming the third Gulf Arab oil producer with a dollar peg not to follow Tuesday's US rate cut as soaring oil prices spur economic growth and inflation.

Oman's Central Bank Governor Hamood Sangour Al-Zadjali told Reuters on Monday his country has no plans to match the 50 basis point cut in the US federal funds rate to 4.75%.

"We have not done anything," said Zadjali, who is executive president of the Central Bank of Oman.

Asked if he planned to cut rates, he said: "No... our economy is different than it is in the US. They have their own reasons for reducing interest rates that do not necessarily match our requirements."

Gulf currencies, including Oman's rial and the UAE dirhams, have hit several-year highs this month as speculation that Saudi Arabia might revalue its currency spilled over into other Gulf states.

Saudi Central Bank Governor Hamad Saud Al-Sayyari told Reuters last week he would not match the US rate cut, fuelling speculation the world's largest oil exporter might abandon its peg.

That helped the dollar sink to a record low against euro, falling below $1.40 for the first time.

The Omani rial hit more than a four-year high of 0.38346 on September 6 and the dirham held near a 5-year high on Monday.

Saudi Arabia's riyal surged to 21-year high against the dollar on Thursday and Friday.

Of the five Gulf Arab oil producers that peg their currencies to the dollar - Saudi Arabia, Bahrain, the UAE, Qatar and Oman - only the UAE and Qatar have cut interest rates.

Kuwait, which dropped its peg in May though still keeps the US currency as part of a basket, cut interest rates last week.

Oman's inflation accelerated to 5.98% in July, the highest this year, and sets its interest rates in a weekly auction of Certificates of Deposit.

The latest one-week rate is 3.50%. - Reuters

Join the Discussion

Disclaimer:The view expressed here by our readers are not necessarily shared by Arabian Business, its employees, sponsors or its advertisers.

Please post responsibly. Commenter Rules

  • No comments yet, be the first!

All comments are subject to approval before appearing

Further reading

Features & Analysis
Banking on reforms in Kuwait

Banking on reforms in Kuwait

As Kuwait stares down its first deficit in 20 years, the Gulf...

Saudis face dilemma between size and pricing in debut bond sale

Saudis face dilemma between size and pricing in debut bond sale

Riyadh is under pressure to maximise the size of its international...

Saudis cut wage, benefit bill in delicate pursuit of austerity

Saudis cut wage, benefit bill in delicate pursuit of austerity

Some Saudis appear prepared to accept austerity following the...

Most Discussed