Statement by Sione Ngongo Kioa, Governor: Monetary policy decision

2021

Statement by Sione Ngongo Kioa, Governor: Monetary policy decision – June 2021

The Board of Directors of the National Reserve Bank of Tonga, at its meeting on June 10, 2021, approved the continuation of its current monetary policy measures described below. This is to encourage the use of excess liquidity in the banking system, providing more loans to growth sectors and supporting the economy against the impacts of COVID-19.

  1. Maintain the monetary policy rate at 0% (zero rate policy).
  2. Maintain the minimum loan / deposit ratio of 80%.
  3. Maintain the statutory reserve deposit rate at 10%.
  4. Maintain the benchmark inflation rate at 5%.
  5. Monitor commercial bank liquidity and adjust SRD ratio if necessary.
  6. Monitor the capital reserves of commercial banks and adjust them further if necessary.
  7. Ease exchange control requirements if necessary.
  8. Continue to issue government bonds.
  9. Maintain clear channels of effective communication with financial institutions for adequate preparation.
  10. Continue to be transparent and publicize its monetary policy decisions through public press releases.
  11. Closely monitor the impacts of the pandemic on the financial system for early detection of any signs of vulnerability.
  12. Continue to ensure that commercial banks and non-bank financial institutions adhere to all government statements regarding COVID-19 in the workplace while providing essential financial services to the public.

Reserve Bank governor Sione Ngongo Kioa said national economic activities improved in March 2021. The primary sector reported more exports of agricultural products, especially cassava, yams and beans. taro. Loans to secondary sector industries have increased, involving more activity for the construction and manufacturing sectors in particular. Total container registrations increased significantly in March 2021 due to predominantly commercial container registrations indicating an active wholesale and retail industry. However, vehicle registrations declined during the month.

Inflation rose 1.4% in March 2021, again due to rising import and domestic prices. As in previous months, this is due to rising prices for food, fuel and electricity. Headline inflation rose 3.3% due to higher import and domestic prices. This was due to higher prices for food, tobacco and alcoholic beverages (imported), while higher prices for food, tobacco, and clothing and footwear pushed up domestic prices.

In March 2021, official foreign exchange reserves continued their downward trend after falling last month. It fell from $ 6.7 million to $ 685.7 million, the equivalent of 11.7 months of imports. This was due to an increase in import payments during the month. However, each year foreign exchange reserves have increased significantly by $ 228.2 million. This is mainly attributed to budget support revenues, official grants and remittances.

The entire banking system continues to maintain its strength, supported by strong capital positions and excess liquidity. The increase in total deposits and the decrease in total loans led to a drop in the loan-to-deposit ratio of 67.2% in March 2021, down from 68.2% last month and still below the minimum of 80%. The weighted average interest rate spread narrowed by 1.2 basis points in March 2021 and by 26.1 basis points annually to 5.7%.

The Reserve Bank’s latest GDP outlook forecasts a deeper contraction of the economy for 2020/21. However, the level of foreign exchange reserves should always be above the minimum threshold of 3 months of import coverage. Inflation is expected to exceed the benchmark rate by 5% in the coming months, in line with the rebound in global food, oil and commodity prices coupled with rising freight rates amid uncertainties over the market. COVID-19. However, it is expected to fall back below the 5% benchmark range by the last quarter of 2021. The banking system remains strong, supported by liquidity and high capital positions. At the same time, the Reserve Bank continues to be vigilant by closely monitoring its economic and financial indicators and stands ready to adjust its monetary policy parameters if necessary to maintain internal and external stability and support macroeconomic growth.

Surveys

Department of Economics
National Reserve Bank of Tonga
Fasi mo e Afi
NUKU’ALOFA

Telephone: (676) 24057
Fax: (676) 24201

E-mail: [email protected]

Resources

Warning

National Reserve Bank of Tonga published this content on June 15, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on 14 Jun 2021 21:57:00 UTC.


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