The Central Bank of Oman (CBO) has no plans to change its monetary policy to follow other Gulf states and raise interest rates in response to the US Federal Reserve’s first interest rate hike in nearly a decade.

Four of the six members of the GCC economic bloc last week raised interest rates amid mounting pressure on their economies on the back of sliding oil prices.

Saudi Arabia, the largest oil exporter in Opec’s basket, Kuwait and Bahrain all announced the increase of a quarter-of-a-percentage point on official interest rates on 16 December, while the UAE replicated the move on 17 December.

The announcements followed the decision from the US central bank to lift the range of its benchmark interest for the first time in almost a decade to 0.25-0.50 per cent, up from 0-0.25 per cent. 

It was widely expected that the GCC states would follow the US Fed decision. Oman and possibly Qatar were also expected to mimic the move. However, Hamood bin Sangour al-Zadjali, executive president of the CBO, said there would not be a policy change in Oman for now. “For the time being, we have no intention to change the official interest rate of the central bank,’’ Al-Zadjali was quoted as saying by the Oman Observer in a statement.

The CBO imposes an interest rate of 1 per cent for bank loans, while the certificates of deposits and treasury bills are subject to an interest rate of less than 1 percentage point.

Saudi Arabia’s central bank increased the reserve repo rate, the rate at which commercial banks deposit money with the central bank, from 25 basis points to 50 basis points. However, the key repo rate remains unchanged. Kuwait raised the discount rate by 0.25 per cent to 2.25 per cent. Bahrain also raised its overnight interest rate by 25 basis points to 0.5 per cent, and its rate for one week by a similar value to 0.75 per cent. It kept the repo rate unchanged at 2.25 per cent.

The UAE central bank raised the rate on its certificates of deposits – the monetary policy instrument used by the regulator through which changes in interest rates are transmitted – by 25 basis points.

The Omani rial is pegged to the US dollar which, according to Al-Zadjali, will bring benefits by reducing the value of imports from countries that are not pegged to the US dollar and will also help in cutting inflation. Raising the interest rate on the US dollar will increase the cost of borrowing from the global market for the government banks and institutions.

The plunge in oil prices since June last year has started putting pressure on regional governments, which rely heavily on the sale of crude for revenues. The loss of oil revenues are forcing them to borrow from local financial institutions in order to plug the budget deficit. Money markets are also facing the squeeze in the absence of petro dollars flowing into the banking system, threatening to squeeze lending to corporations and consumers.

Qatar’s central bank has indicated it may delay any rate rise. In October, central bank governor Sheikh Abdullah bin Saud al-Thani insisted that he saw no need to follow any US move to raise interest rates.

However, in the last few weeks the Qatari riyal has dropped in the forwards market to its lowest level against the dollar since 2009, so the central bank may not be able to keep official rates low indefinitely.