Currency revaluation harmful, says Oman |
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Oman yesterday ruled out revaluing its currency against the US dollar on the grounds such a move could hurt growth and depress its revenues.
The Central Bank of Oman (CBO)Central Bank of Oman (CBO)
said the long-standing peg between the rial and the dollar has served the domestic economy and ensured fiscal stability despite the impact of the recent dollar decline on inflation.Quoted by the Oxford Business Group, CBOCBO
Executive President Hamoud Sangour Al Zadjali said the bulk of Oman's income comes from oil exports, which are priced in dollar, adding a revaluation would hit that income."Oman's oil income accrues almost entirely in dollars and a revaluation would correspondingly reduce these revenues in rial terms. At the same time, as budgetary expenses would remain allocated in rials, revaluation would come as a major pressure on the nation's fiscal situation," Al Zadjali told OBG in an interview, sent to Emirates Business yesterday.
"The fixed peg of the rial to the dollar has served as one of the key underlying factors behind sustained monetary and financial stability in an open and oil-dependent economy, and the exchange rate stability has also been a potent driving force in promoting investment and growth in the country," he said.
He acknowledged a sharp fall in the dollar against other major currencies over the past year has been one of the main causes of domestic inflation as a lower rial led to a rise in Oman's import bill.
"No regime has only benefits, without any costs," Al Zadjali said.
"The choice of the regime has to be specific to the needs of the country, so that costs are minimised while the benefits are maximised in relation to the needs. Revaluation may have many harmful and undesirable effects on the economy."
Al Zadjali said the current peg has the benefit of preventing exchange rate speculation, thus promoting trade and investment.
"The fixed peg still looks like the most appropriate regime for Oman, and the CBOCBO
remains committed to defending the peg as one of the key pillars of its overall approach to monetary and financial stability in the country," he said."One must notice that recently the dollar has gradually reversed its depreciating trend, and oil has declined by more than 20 per cent from its mid-July peak levels."
By Staff Writer
© Emirates Business 24/7 2008
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