Oman says committed to currency peg despite cheap oil

The plunge of oil prices since mid-2014 has put heavy pressure on Oman’s state budget, causing one-year dollar/rial forwards to rise as high as 1,000 points this week



Oman is committed to maintaining the peg of its currency against the U.S. dollar despite the drop of oil prices, central bank executive president Hamood Sangour al-Zadjali said.

“We are committed to keeping the Omani rial pegged to the U.S. dollar,” Zadjali texted to Reuters late on Wednesday in a response to a question. He did not elaborate.

The plunge of oil prices since mid-2014 has put heavy pressure on Oman’s state budget, causing one-year dollar/rial forwards to rise as high as 1,000 points this week, their highest since 2006, as some investors hedged against the risk of an eventual rial devaluation.

Devaluing the rial could aid state finances by increasing the local currency value of oil exports. However, it would also raise the cost of the many imports on which Oman depends and could shake investor confidence, so economists do not think authorities will abandon the peg.

They note that Oman has maintained the peg, set in 1986 at 0.3849 rial to the dollar, through past periods of extreme oil price weakness.

On Monday, credit rating agency Fitch cut its long-term issuer default ratings for five Omani banks, saying the government had become less able to support the banking system.

But Zadjali noted that after the downgrade, Fitch had left the outlooks for the banks stable, and he said they did not face significant financial pressures.

“Omani banks are in an excellent position, and well covered financially. They don’t need the government support, and will not be affected with the recent downgrading,” he said.

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