Despite rising inflation, Reserve Bank remain confident and urges banks to lend

    The Reserve Bank wants to encourage banks to lend money to support the kingdom’s economic growth, Acting Governor of the Reserve Bank Jessie Cocker said today.

    The announcement came as the Reserve Bank released figures showing that despite rising inflation, the Bank remained confident of strong economic activity.

    In order to promote lending, the Bank would maintain the monetary policy rate at zero percent interest, keep the minimum loans/deposit ratio at 80% and keep the Statutory Reserve Deposit ratio at 10 percent.

    Cocker said the domestic economy picked up in February after slow growth in January.

    He said the recovery in February had been helped by an improved agricultural sector, construction and growth in the distribution sector.

    However, the news was not all good, with foreign reserves falling over the month to $377.7 million due to the deficit in Overseas Exchange Transactions.

    The annual inflation rate increased significantly by 8.9% in the year ending February 2017.

    This was due mainly to the new customs duty and excise tax introduced in July 2016 which largely drove the 10.5% rise in import prices.

    Annual domestic inflation also rose by 6.8%, mainly because of the continued short supply of kava-Tonga and unstable local food prices.

    Despite these problems, the Reserve Bank expects strong economic activity to continue for the time being.

    Cocker said the level of foreign reserves was expected to remain adequate, supported by estimated higher receipts of remittances and foreign aid.

    Inflation was expected to fall in 2017/18.

    The main points

    • The Reserve Bank wants to encourage banks to lend money to support the kingdom’s economic growth, Acting Governor of the Reserve Bank Jessie Cocker said today.
    • The announcement came as the Reserve Bank released figures showing that despite rising inflation, the Bank remained confident of strong economic activity.
    • However, the news was not all good.
    • Tonga’s foreign reserves fell over the month to $377.7 million and the annual inflation rate increased by 8.9%.

     

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