Central Bank of Oman seeks to ensure ample liquidity level

23/11/2014 04:35 AST

Monetary management is facing an excess of liquidity in commercial banks even as the main focus of the Central Bank of Oman (CBO) is to ensure adequate levels of liquidity in the banking system so as to avoid internal and external imbalances.

The report issued by the bank said that the Narrow Money Supply (M1) recorded a significant increase of 18.1 per cent at the end of September 2014, compared with the same period in 2013.

This increase was mainly driven by a 23.7 per cent increase of money in circulation among the public in addition to the 16 per cent increase of demand deposits.

The cash equivalents, which consist of the total savings deposits and time deposits in Omani rial, as well as certificates of deposit issued by commercial banks, in addition to the accounts of guarantee margin and all deposits in foreign currency, increased by 13.6 per cent during the year.

The cash equivalent share of the total money supply saw a decline from 66.7 per cent in September 2013 to 65.9 per cent in September 2014.

The Broad Money (M2), which consists of the sum of Narrow Money Supply (M1) + cash equivalent, amounted to about OMR12.9 billion as compared to OMR11.2 billion in September 2013, registering an increase of 15.1 per cent during the year.

With regard to the structure of interest rates of commercial banks, interests plummeted on deposits and lending alike. The weighted average of interest rates on the CBO tool to absorb excess liquidity, which are certificates of deposit over a period of 28 days, also saw a slight decrease from 0.130 per cent in September 2013 to 0.126 per cent in September 2014.

The CBO tool to inject liquidity into the banking system was represented in the re-purchase of securities operations. The average interest rates remained steady and unchanged at 1 per cent since March 2012.

The overnight average lending interest rates in the interbank market fell from 0.158 per cent in September 2013 to 0.131 per cent in September 2014.

The weighted average interest rates on deposits in the Omani rial dropped from 1.236 per cent in September 2013 to 1.030 per cent in September 2014. The weighted average interest rates on loans in the Omani rial declined from 5.463 per cent to 5.163 per cent in the same period.

Times of Oman