The Central Bank of Oman (CBO) has once again reiterated that inflation in the Sultanate of Oman is expected to remain largely benign despite rising inflationary trends being reported elsewhere around the world.
The apex bank cited a number of factors for inflation continuing to remain moderate, not least because of strong oil revenues which have enabled the Omani government to tackle inflationary pressures through targeted interventions.
“As an oil exporter, rising commodity prices are a net positive for Oman as the higher proceeds from hydrocarbons have provided ample fiscal space to the government to counterbalance any inflationary pressures with targeted interventions to complement the impact of monetary policy actions,” the Central Bank noted in its 2022 Financial Stability Report issued here this week.
The report pointed out that despite global inflationary concerns, inflation expectations in Oman will remain moderate. “Unlike in many other economies where property prices and rents grew at record rates during the pandemic, the property prices in Oman fell in 2020 due to a decline in population and stabilised in 2021. Due to ample supply, housing costs are not expected to rise sharply in the near term,” the Central Bank said.
Likewise, the prices of utilities, such as water, gas and electricity – all of which can have an impact on inflation -- are “administered” in Oman. Motor fuel prices, for example, have been capped for 2022 at the October 2021 level. Additionally, on the foodstuff front, while the landed costs of some food commodities, notably food grains and edible oil, will contribute to higher prices, “inflation will remain benign for over 50 per cent of the consumer basket,” the report stated.
CBO Executive President Tahir bin Salim al Amri noted that a recent survey of credit conditions has underscored optimism of an increased uptake of credit by households and businesses in 2022 – a reflection of inflation not being of particular concern in Oman.
Writing in the foreword, he said: “To tackle the mounting inflationary trends, the US Fed has raised its benchmark interest rate thrice during the first half of 2022. Following the lead of the Fed, Oman also raised its repo rate to 2.25 per cent by mid-June 2022 in three successive rate revisions.”
He further added: “Nevertheless, a recent Credit Conditions Survey reveals that in 2022 financial institutions foresee an increase in the demand for credit from households and businesses, and they anticipate easing of credit availability to both segments.”
Significantly, the latest changes in the policy rate have not yet had any impact on retail interest rates, according to the Central Bank. It warned however that any further hike in interest rates “may raise the borrowing costs in Oman”.
“Nevertheless, based on the assessment conducted so far, the banking sector in Oman remains resilient to the moderate increase in interest rates,” the report added.
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