Monetary Policy Decision - September 2021

The National Reserve Bank of Tonga’s Board of Directors, at its board meeting on the 29th of September 2021, approved to maintain its current monetary policy measures outlined below. This is 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.

  1. Maintain the monetary policy rate at 0% (zero interest rate policy).
  2. Maintain the minimum loans/deposit ratio of 80%.
  3. Maintain the Statutory Reserve Deposit ratio at 10%.
  4. Maintain the inflation reference rate at 5%.
  5. Monitor the commercial banks' liquidity and adjust the SRD ratio if needed.
  6. Monitoring the commercial banks’ capital reserves and adjust further when required.
  7. Ease the exchange control requirements when required.
  8. Continue to assist the Government during COVID-19 with issuing Government Bonds.
  9. Maintain clear channels of effective communications with the financial institutions for adequate preparedness.
  10. Continue to be transparent and raise awareness of its monetary policy decisions through press releases to the public.
  11. Closely monitor the impacts of the pandemic in the financial system for early detection of any signs of vulnerability.
  12. Continue to ensure both commercial banks and non-bank financial institutions adheres to all Government declarations regarding COVID-19 in the workplace while delivering essential financial services to the public.

The Governor of the Reserve Bank, Sione Ngongo Kioa reported a general slowdown in the domestic economy during July 2021. The primary sector noted a decline of agricultural exports, particularly root crops. The secondary sector also slowed during the month reflected by lower loans extended to the construction and manufacturing sectors. The service sector continued to slow down, reflecting the extended COVID-19 restrictions due to outbreak of new variants in the neighbouring countries. Total container registrations fell in July 2021 coinciding with lower import payments excluding oil. The redirecting of ships that transit in Fiji before arriving Tonga also contributed to the lower number of cargo ships as well as containers arriving to Tonga.

Inflation rose over the month and year to July 2021 by 0.3% and 6.8% respectively as both domestic and imported prices rose. Higher prices for food items, tobacco, and clothing primarily contributed to the higher local prices. Meanwhile, petrol and food items drove higher import prices.

The level of official foreign reserves fell over the month of July 2021 by $10.5 million to $704.8 million, equivalent to 12.3 months of imports. This was due to large payments for import of oil and other goods & services. In the year to July 2021, foreign reserves still increased substantially by $148.8 million underpinned by receipts of budget support, project funds, and remittances.

The total banking system continues to maintain its soundness, supported by strong capital positions and excess liquidity. Total deposits decreased by $13.4 million (1.7%) to $786.6 million while total lending declined by $0.8 million (0.2%). The decline in total deposits was more than the decline in total lending which resulted in a 59.8% loan to deposit ratio in July 2021, an increase from 58.9% last month, however, still below the 80% minimum. The weighted average interest rate spread narrowed over the month by 2.5 basis points yet widened in the year to July 2021 by 21.2 basis points to 5.87%.

The Reserve Bank’s GDP outlook is more positive for the 2021/22 fiscal year as the global economy is expected to recover coupled with the successful vaccine rollouts. Although there is expected inflationary pressure, it is projected to be transitory and will eventually fall below the 5% reference rate in the next 6 months. However, foreign reserves is still expected to remain at sufficient levels above the 3 months minimum threshold of import cover. The banking system is still sound supported by high liquidity, adequate capital and subdued credit growth. The Reserve Bank continues to be vigilant by closely monitoring its economic and financial indicators, and stands ready to adjust its monetary policy settings if needed to maintain internal and external stability and support macroeconomic growth.


Economics Department
National Reserve Bank of Tonga
Fasi mo e Afi

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

Email: This email address is being protected from spambots. You need JavaScript enabled to view it.


Press Release in English
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Press Release in Tongan
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