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Mon 23 Jun 2008 01:13 PM

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Dollar peg to stay, Oman reiterates

Central bank governor says peg best suited to economy, despite inflation hitting 12.4% in April.

Non-OPEC oil exporter Oman has no plans to drop its currency peg to the weak US dollar as the link was suitable for its oil-reliant economy, the Gulf Arab state's central bank governor said on Monday.

Hamood Sangour Al-Zadjali also said he expected economic growth to accelerate to 12 percent in 2008 thanks to higher revenue from oil exports - a hefty increase compared to the official estimate of 9 percent growth for 2007.

"No plans to remove the rial peg to the dollar since the dollar peg is best suited for our economy," Al-Zadjali told newswire Reuters, whose country is enjoying windfall income from exports of oil, whose price rose almost seven-fold since 2002.

"I expect Oman's economy to grow 12 percent this year due to high oil income and increased government spending," he said.

Higher oil revenue is driving investment in infrastructure, industry and real estate across the Gulf Arab region.

Inflation is accelerating across the region, where most countries, including Oman, peg their currencies to the ailing dollar, which is driving up import costs.

Inflation in Oman accelerated to a record 12.4 percent in April as soaring global food prices and rents intensify price pressures across the world's biggest oil-exporting region.

Al-Zadjali said in February that currency weakness is only part of the problem, accounting for about a fifth of inflation guided largely by high global commodity prices.

Al-Zadjali has repeatedly said Oman is committed to keeping a dollar peg that has helped it attract foreign investments.

Oman's central bank has raised bank reserve requirements for the third time in less than a year to force lenders to keep more money in their vaults as a means of slowing down money supply growth. (Reuters)