Tonga has accumulated a Foreign Reserve of $311.7 million pa’anga at the end of September, while its domestic inflation rate was 3.2% for September, according to the latest figures on the National Reserve Bank of Tonga [2] website.

The high domestic inflation rate was offset by imported inflation which dropped by -5.2%; therefore, the NRBT was able to report a negative headline inflation rate of -1.9% for September.

Monetary Policy

At the same time the NRBT estimates strong growth in the economy for 2015-16 and a positive outlook, according to its ‘Monetary Policy Statement for August 2015’ released on November 4.

 “Gross official foreign reserves increased significantly over the past six months, reaching a record high of $310.9 million at the end of August 2015,” the NRBT stated.

“This is in line with a surplus of $26.9 million in the balance of Overseas Exchange Transactions (OET) over the year to August 2015. The NRBT expects the high level of foreign reserves to be maintained in the near term.”

The NRBT attributed its success to an Accommodative Monetary Policy that was approved by the Board of Directors of the NRBT.

The monetary policy aims to maintain an adequate level of foreign reserves to cover three to four months of import cover and “to promote low and stable inflation below 6% annually.”

Consumer prices

Consumer prices decreased over the year to August 2015 by 1.1%. “Lower global energy and food prices contributed to the fourth month of deflation since February 2015. Headline inflation will continue to remain relatively low until the end of this calendar year supported by the declining global oil prices and low imported food prices,” the NRBT stated.

Outlook

“Looking forward, the NRBT anticipates strong growth of 3.3% for 2015-16, and an upward revision from the estimated growth of 3.2% in the February 2015 Monetary Policy Statement driven by a rebound in primary production, particularly the agricultural and fisheries sectors.”

It reported that monetary conditions improved, as total credit and deposits continued to grow, and the banking system remained sound.

It is also anticipated that government receipts will increase in the near term from budget support, issuance of government bonds and other new revenue streams. These are to finance the overall net borrowing requirement of $20.7m million for the 2015-16 fiscal year.

The Board of Directors of NRBT were pleased with the positive outlook of the domestic economy.