As an economic slowdown continues, the National Reserve Bank of Tonga has offered SDR relief for commercial banks, to encourage them to reduce interest rates for customers.

The Reserve Bank announced on Friday, December 18 that the ANZ Bank and the Westpac Bank of Tonga have agreed to reduce their lending rate by 0.25% effective from January 4, 2010 for some customers.

The Governor of the Reserve Bank, Mrs Siosi Cocker Mafi stated that, "the Reserve Bank Board of Directors noted the continued slow-down in economic activity and the difficulties that the borrowers are facing in meeting their debt repayment obligations."

She stated that the decision to try and stimulate economic activities by reducing interest rates was reached after consultation between the Board of Directors of the Reserve Bank and the Association of Banks in Tonga.

Relief for Banks

In order for the Commercial Banks to reduce their interest rates, the Board of Directors of the Reserve Bank adjusted its monetary policy. It approved the reduction of its Standard Required Deposit from 10% to 5%. This is the percentage of depositors' funds, that is required by law for the Commercial Banks to deposit with the Reserve Bank.

In addition the Reserve Bank will also pay the Commercial Banks 1% interest on banks' exchange settlement account balances over $TOP1 million, effective from January 4, 2010. This is the settlement of the accounts of customers one bank against the customers of another bank.

House loans

However, the Loan Division of the Westpac Bank of Tonga today, December 23 confirmed that their 0.25% reduction in interest rate applies only to loans for houses. From January 4, 2010 their interest on House Loans will drop from 10.25% to 10%.

There was no confirmation from the ANZ Bank but the Reserve Bank expected that the ANZ Bank would reduce their interest rates on all loans by 0.25%.

Other banks, such as the Tonga Development Bank and the MBF Bank are not part of this exercise.