Higher imported and domestic prices have driven increasing inflation in Tonga. In the year to August 2021 inflation rose by 7.0%, the National Reserve Bank of Tonga reported.

“The higher annual headline inflation is above the 5% reference rate. Higher prices for food items and electricity mainly led to the higher local prices, whilst higher imported prices were driven by higher prices for fuel, gas, and food items,” the NRBT stated.

However, the Reserve Bank's GDP outlook is more positive for the 2021 / 22 fiscal years as the global economy is expected to recover. “Although there is expected inflationary pressure, it is projected to be transitory and will eventually fall below the 5% reference rate in the next six months,” the NRBT forecast.

The Board of Directors on 11 November approved to maintain its current monetary policy to encourage utilization of the excess liquidity in the banking system by further lending to growth sectors and supporting the economy from the impacts of COVID-19.

The Governor of the Reserve Bank, Sione Ngongo Kioa, reported noticeable activity in the domestic economy in recent months.

In August the primary sector recorded growth as total agricultural volumes rose by 27.9 tonnes (3.9%) driven by higher exports of root crops

The Secondary Sector reported loans extended for manufacturing, utility, and mining and quarrying purposes, indicating positive activity across those industries.

Meanwhile, the Tertiary Sector showed mixed outcomes in August 2021, with container registrations having substantially increased by 430 containers (86.3%), “due to more business and private containers, because of delayed shipments due to rerouting of ships as Delta variant continues to break out in neighbouring countries.”

The Tourism Industry remains mostly stagnant.

The level of official foreign reserves rose significantly over the month and in the year to August 2021 by $46.9 million and $195.6 million, respectively. This monthly rise was mostly due to an increase in capital inflow and remittances.

Annually, foreign reserves increased, resulting from more receipts of budget support, project funds, and remittances. During the month of October 2021 was $757.0 million, equivalent to 12.7 months of imports.

“The total banking system continues to maintain its soundness, supported by strong capital positions and excess liquidity. Total deposits increased by $7.7 million (1.0%) while total lending declined by $2.8 million (0.6%). The rise in total deposits and the decline in total lending resulted in a lower loans to deposit ration of 58.9% in August 2021, compared to 59.8% the previous month and still below the 80% minimum. The weighted average interest rate spread widened over the month and year to August 2021 by 2.8 basis points and 24.7 basis points respectively, to 5.90%.”

Foreign reserves are still expected to remain at sufficient levels above the 3 months minimum threshold of import cover.