Overview
The Central Bank of Oman (CBO) was established in 1974, taking over monetary functions from the Currency Board of Oman. It operates as Oman’s monetary authority, banking sector supervisor, and foreign reserve manager.
The CBO’s primary monetary policy tool is the maintenance of the Omani Rial (OMR) peg to the US Dollar at a rate of 0.3845 OMR/USD — a peg that has been in place for decades and provides exchange rate stability that benefits trade, investor confidence, and the predictability of hydrocarbon revenue in domestic currency terms.
The OMR-USD Peg
The OMR-USD peg is both a monetary policy choice and a constraint:
Benefits: Exchange rate stability eliminates currency risk for importers and exporters, reduces inflation volatility, and provides a credible nominal anchor for monetary policy expectations. For an oil-exporting economy where revenues are USD-denominated, the peg ensures that fiscal revenues translate predictably into domestic purchasing power.
Constraints: The peg effectively eliminates independent monetary policy — Oman’s interest rates must track the US Federal Reserve’s rates regardless of domestic economic conditions. When US rates rise sharply (as in 2022-2023), Oman’s rates rise in parallel, potentially constraining domestic credit growth.
The CBO has maintained the peg through significant oil price volatility — including the 2015-2016 price crash and the 2020 COVID collapse. The credibility of the peg depends on adequate foreign exchange reserves and fiscal discipline; the fiscal turnaround of 2022-2024 has strengthened peg credibility.
Banking Sector Supervision
Oman’s banking sector includes:
- Conventional banks: Bank Muscat (largest), National Bank of Oman, Oman Arab Bank, HSBC Oman, Bank Dhofar, and others
- Islamic banks: Bank Nizwa, Alizz Islamic Bank (merged into Oman Arab Bank), and Islamic windows of conventional banks
- Specialised banks: Oman Housing Bank, Bank Sohar
The CBO supervises capital adequacy, liquidity, credit risk, and corporate governance across the banking system. Oman’s banking sector is well-capitalised by international standards, with non-performing loan ratios that are moderate relative to peers.
Financial Sector Development
Under Vision 2040, the CBO has a mandate to deepen Oman’s financial sector:
Islamic finance: Oman only permitted Islamic banking from 2012 — later than most GCC peers. Islamic banking has grown rapidly and now represents approximately 15-20% of banking assets.
Fintech regulation: The CBO operates a regulatory sandbox for fintech innovators, and has issued regulations for digital payments, open banking, and electronic money.
Capital market development: In coordination with the Capital Market Authority (CMA), the CBO supports deeper financial markets — corporate bond issuance, sukuk, and derivative instruments.