Reserve Bank Monetary Policies: ‘Stay Relevant to Promote the Kingdom’s Economic Recovery’
Following the 2022 COVID-19 pandemic, HTHH volcano eruption and tsunami ashfall damages, the monetary and financial policies of the National Reserve Bank of Tonga are critical to stay relevant to be supportive of the Kingdom’s economic recovery contributing to macro stability in 2023, resilience to shocks in the short to medium term. Since February 2023, the Reserve Bank prioritized slowing down headline inflation which continued to slow to 7.4 percent in April 20231 (from a peak of 14 percent in September 2022). Inflation is expected to return below the Reserve Bank reference rate of 5 percent towards the second half of 2023 and in 2024 with continuing lower petroleum prices as in June 2023, stable commodity prices, supply chain improvements and local productive sector rebound.
‘The Reserve Bank policy measures under its February 2023 Monetary Policy Statement are on track to support Tonga’s economic rebound from negative growth in 2022 towards a positive growth of 2.5 percent in 2023, and over 3.0 percent projected for 2024 supported by annual increasing credit to the private sector through our commercial banks expected to reach over 9 percent growth by September 2023 enabled by high liquidity’ said Governor Tatafu Moeaki.
Tonga’s exchange rate policy framework saw the Tongan Pa’anga appreciated against our major trading currencies in June 2023 and continue to maintain adequate level of foreign reserves (12 months of imports in June 2023) for over two years to date, and projected to manage external balances in the short to medium term.
Credit easing to support the productive sector address supply disruptions including agriculture, fisheries, tourism and manufacturing were requested to the Government to support through the Ministry of Finance budget and fiscal policies.
External risks, negative impacts on petroleum prices and elevated inflation in our key trading partners will weigh on both the world economy and Tonga whilst natural hazards continue to threat the local economy in the short to medium term. The Reserve Bank current monetary policy measures under its February 2023 Monetary Policy Statement are under review with the aim to update the policy measures in August 2023 to ensure monetary and financial policies are consistent with price stability objectives and offers room to deal with internal and external shocks.’
- Governor’s Office, National Reserve Bank of Tonga.