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Apex bank eases curbs

MUSCAT — The Central Bank of Oman said yesterday that it was reducing bank reserve requirements and raising the loan-to-deposit ratio as part of its efforts to defrost regional credit markets.

The apex bank said it would cut the reserve ratio to 5 per cent from 8 per cent, while also loosening the loan-to-deposit ratio to 87.5 per cent from 85 per cent. The changes, which will come into effect on January 1, were taken in consideration of the local economic scenario, the CBO said in a statement.

The meeting was presided over by Dr Ali bin Mohammed bin Moosa, minister of health and chairman of the CBO’s board of governors. Global financial turmoil has put the brakes on an economic boom in the Gulf region and has discouraged private investors from taking loans to participate in public-private expansion projects because of the high cost of funding.

Gulf policymakers have sought to ease tight liquidity and improve investor confidence by slashing interest rates, reducing reserve requirements, guaranteeing bank deposits and setting up emergency funding facilities for banks.

“A reserve requirement is like a tax on the banking system. Lowering it will hand immediate liquidity to Omani banks which they can use as they see fit,” said Giyas Gokkent, chief economist at National Bank of Abu Dhabi.

“The lowering of the reserve requirement will also allow banks to get a return on the funds that have been released.” Oman’s stock index, which fell 2.29 per cent yesterday, has fallen more than 30 per cent this year.

The CBO, tackling record inflation rates above 13 per cent this year, raised reserve requirements in August to 8 per cent from 5 per cent in an effort to curtail credit growth.

But as the global credit crisis intensified, fighting inflation took a back seat as Gulf governments sought to boost confidence in their banks.

Like most of its neighbours in the Gulf region, Oman pegs its currency to the US dollar. The central bank, which sets interest rates every Monday, cut its repurchase rate by 89 basis points to 1.53 per cent last week ahead of a move by the US Federal Reserve to slash its key interest rate to nearly zero.

It has also allocated about $2 billion to local banks to provide them with dollar liquidity, while the government set up an RO150 million Market-Maker Fund with the private sector to help stabilise the securities market.

Inflation, which has almost doubled in the last year, could moderate significantly in 2009 as price pressures decline in developed countries, food and non-oil commodity prices ease and the dollar gains, CBO’s Executive President Hamood bin Sangour Al Zadjali said this month.

Inflation in Oman eased for a second month in October to 12.6 per cent.

The board also approved CBO’s annual budget for 2009 and reviewed its financial position as at the end of November 2008. (With inputs from Reuters)