Inflation likely to fall further says Reserve Bank as rate falls below five percent

Tonga’s overall price level fell by just under one percent and inflation slowed to just under five percent in December, the National Reserve Bank said today.

The inflation rate stood at 6.1% in December 2017, down from a record 6.5% the previous November.

The bank said inflation was likely to fall further.

The Reserve Bank said Tonga’s economic outlook remained positive in the medium term, but uncertainty over the weather posed a risk.

Reserve Bank Governor Sione Ngongo Kioa said a number of sectors in the domestic economy had shown stronger growth.

Marine exports volumes more than doubled in December as a result of more exports of tuna. Agricultural export proceeds rose mainly from squash exports.

Construction activities reflected a stronger performance of the secondary sector supported by growth in business construction and individual housing loans.

Remittances increased in December following a decline in the previous month. This was expected to boost consumption and increase the amount of consumption tax collected.

Travel receipts rose in December with an increase of airline passengers visiting for the festive season.

Net inflow from foreign exchange deals with commercial banks and budget support receipts pushed foreign reserves to a record high in December 2018 of TP$478.5 million.

At its first meeting of the year, the Reserve Bank board of directors agreed to maintain a range of  monetary policies. These were to:

Maintain the monetary policy rate at 0% (zero interest rate  policy);

Maintain the minimum loans/deposit ratio of 80%;

Maintain the Statutory Reserve Deposit ratio at 10%,  and

Maintain the inflation reference rate at  5%.

Kioa said the banking system would continue to remain strong.

He said the Reserve Bank continues to encourage increased lending to support domestic economic activities and strengthen the monetary policy transmission mechanism.

The main points

  • Tonga’s overall price level fell by just under one percent and inflation slowed to just under five percent in December, the National Reserve Bank said today.
  • The bank said inflation was likely to fall further.

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