Credit ceiling imposed on banks as Tonga's foreign reserve drops [1]
Friday, January 13, 2006 - 16:38. Updated on Wednesday, October 1, 2014 - 11:46.
Tonga's reserve bank this week imposed a credit ceiling on banks in move to control lending and stop a marked decline in its foreign reserve
The Board of the National Reserve Bank of Tonga on January 11, 2006 announced credit ceilings for individual banks in an effort to maintain the level of the official foreign reserves.
Tonga's Foreign Reserve at the end of November 2005 was enough for 4.3 months of imports, a marked drop from the level at the end of 2004, which was enough for 5.4 months of imports.
A National Reserve Bank statement forecasted that during the next six months the level of the official foreign reserves would decline further. It also stated that the higher level of government salaries was likely to underpin continued strong growth in credit, leading to further downward pressure on official foreign reserves and upward pressure on inflation.
The Reserve Bank believed that the imposition of credit ceilings for banks would stabilize the country's long-term macroeconomic policy.