The Central Bank of Oman said on Thursday it had amended bank reserve requirement rules to release RO270 million ($701.3 million) into the banking system to help lenders cope with the financial crisis.

Policymakers across the Gulf Arab region have adopted a slew of measures to defrost credit markets to keep their economies moving as Western economies enter recession.

The Omani central bank, tackling record inflation rates above 13 percent this year, had raised reserve requirements in August to 8 percent from 5 percent in an effort to curtail credit growth.

But as the global credit crisis intensified in the following months, fighting inflation took a back seat as Gulf governments sought to boost confidence in their banks by slashing interest rates, guaranteeing deposits and providing emergency funds.

Oman has since 'effectively' reduced the reserve requirement back to 5 per cent to prevent any indirect effects on liquidity from the global credit squeeze, Central Bank executive president Hamood Sangour Al-Zadjali said.

'The central bank decided to effectively reduce the reserve requirement, which as a result injected about RO270 million back into the banking system,' Zadjali said in an emailed statement to Reuters.

Under new rules, banks are allowed to hold up to 3 percent of deposits 'in the form of currency held in banks vaults and or investments in certificates of deposit issued by the central bank,' he said. The 8 percent official reserve requirement remained intact, he said.

'Since all banks would have cash on hand and almost all banks have interest-bearing central bank CDs as part of their portfolio, it is considered an effective reduction in the reserve ratio,' Zadjali said.

The central bank chief said there was 'no evidence of any major liquidity problem' in Oman, where credit growth hit 52.7 percent in October.

Still, the central bank allocated about $2 billion to local banks to provide them with dollar liquidity, while the government set up a 150 million rial market-maker fund with the private sector to help stabilise the Gulf country's bourse.-Reuters