By Katalina Siasau
Inflationary shocks are expected to hit Tonga because of the war in the Middle East, raising concerns for the National Reserve Bank of Tonga (NRBT), which has introduced its February 2026 Monetary Policy Statement (MPS) aimed at strengthening Tonga’s economic resilience.
The NRBT held a meeting with commercial banks and government officials yesterday, 9 March 2026, to announce the new policy.
The National Reserve Bank of Tonga Board of Directors approved the February 2026 Monetary Policy Statement, maintaining a “Neutral Stance” over the next six months, with the policy rate unchanged at 2 percent. The stance remains data-dependent, with the Bank prepared to tighten policy if inflationary pressures intensify.
In the past six months, headline inflation moderated to 3.1 percent in December 2025, below the 5 percent reference rate. However, core inflation remains elevated at around 10 percent, reflecting persistent domestic price pressures.
Before the recent escalation of the Middle East conflict, the NRBT had already anticipated some temporary upward pressure on inflation in the first half of 2026.
Foreign reserves remain above required thresholds and are expected to stay adequate in the near term, although the medium-term outlook is tilted to the downside due to heightened uncertainty.
The financial system remains stable and adequately capitalised. Excess liquidity declined in February 2026 following the resumption of NRBT Notes issuance in September 2025, which has now become the new norm of monetary policy operations. Meanwhile, credit growth moderated to 3.5 percent in December 2025, while interest rates remained broadly stable.
Real sector indicators point to a gradual economic recovery, with real GDP growth estimated at 2.5 percent in FY2025—below the Pacific average growth of 2.9 percent and global growth of 3.3 percent for the same period.
Governor Moeaki said the global environment had already been turning more difficult before the latest conflict escalation.
“Even before the recent escalation in the Middle East, the outlook for Tonga was already becoming more challenging amidst rising global fragmentation and geo-political tensions. Maintaining a neutral policy stance prioritizes safeguarding stability and strengthening Tonga’s economic resilience. Whilst a short and contained conflict may lead to a temporary inflation shock, a prolonged disruption particularly affecting fuel and shipping costs, could intensify cost-of-living pressures on households and businesses.”
However, over the next six months, the NRBT will:
- Continue strengthening the monetary policy transmission mechanism. This includes reactivation of the interbank market through the issuance of the NRBT notes, and establishment of the Single Treasury Account for MOF at NRBT.
- Maintain the Statutory Reserve Deposit (SRD) at 15% and monitor the Exchange Rate Basket currency movements to safeguard external stability while maintaining adequate foreign reserve buffers.
- Promote financial deepening by accelerating the implementation of the National Financial Inclusion Strategy in coordination with Government fiscal initiatives.
- Coordinate with the Government Fiscal Policy to expedite productive sectors structural reforms, addressing domestic supply-side instability, access to credit, and advocating both capacity and policy alignment.
