The Role of Central Bank Policies and Mechanisms in Combating Inflation

This research aims to examine the role of the central bank in targeting inflation and achieving monetary stability in Oman. The research has tried, through various secondary sources, to highlight the role of the central bank in managing monetary policy. The research aimed to analyze the effectiveness of the central bank in combating inflation, which depends mainly on the effectiveness of the tools used by the Central Bank, its degree of independence and its level of transparency. The research used different methodologies ranging from secondary data, World Bank data and local statistical data. The researcher also used a descriptive statistical method by conducting an interview with an official of the Central Bank of Oman. Also, a standard statistical model was used to study the effect of some variables on the inflation rate in the Sultanate of Oman such as money supply, interest rate, government spending and imports. A model based on time series for the period from 2000 to 2022 was used integrated with the methodology of co- integration and the error correction model; the coefficients of the model were estimated. The results showed that there is a long-term relationship between all variables and the inflation rate, and in the short term, the results showed that there is no effect of the monetary policy variable (money supply) on the inflation rate. By analyzing the available data in addition to the interview responses, the study concluded that inflation in the Sultanate was concentrated mainly on the main consumer commodity groups. Therefore, inflation in the Sultanate can be classified as imported inflation due to its vulnerability to international variables such as the Russian-Ukrainian war and its impact on global supply chains, as well as the repercussions of the pandemic and high shipping costs. The study also showed that the policies of the Central Bank of Oman do not directly affect inflation levels in the Sultanate through key interest rates, but rather through managing local liquidity using available tools such as existing facilities, discount rate and other tools.