The coronavirus pandemic (COVID-19) has shocked the world at an unprecedented speed and scale. It is first and foremost a health crisis, with many human lives being lost across many countries. It has also evolved quickly to becoming an economic crisis driving the global economy into a recession worse than the Great Depression. Financial markets have already felt a huge impact within the first few months of 2020, and could become a financial crisis should the economic fallouts intensifies.

The Reserve Bank maintained its current accommodative monetary policy stance over the six months to August 2019. This was to ensure that it achieves its monetary policy objectives for maintaining internal and external stability, promoting a sound and stable financial system, and supporting economic growth.

Throughout the last six months to February 2019, the Reserve Bank maintained its current accommodative monetary policy stance. This supported meeting the monetary policy objectives by ensuring an adequate level of foreign reserves was maintained above 3 months of import cover, and the exchange rate remained competitive. Inflationary pressure eased as the inflation rate fell below the reference rate of 5% per annum in February 2019. Financial stability was maintained with no signs of overheating, despite the strong credit growth over the year, while excess liquidity still remains in the banking system.

In the past six months to August 2018, the Reserve Bank maintained its current accommodative monetary policy stance. This supported meeting the monetary policy objectives by ensuring an adequate level of foreign reserves was maintained above 3 months of import cover and the exchange rate remained competitive. Inflationary pressure remains as the inflation rate was slightly above the reference rate of 5% per annum in August, however, it is expected to fall below the reference rate in the near term. Despite the strong credit growth over the year, financial stability was maintained with no signs of overheating and there is still excess liquidity in the banking system.

The Reserve Bank’s monetary policy objectives were observed during the past six months to February 2018 and for that reason the Reserve Bank maintained its current monetary policy stance. Inflationary pressure eased in February 2018, foreign reserves remained at comfortable levels above the minimum range of 3 – 4 months of import cover and exchange rates remained competitive. The stability of the financial system was maintained with no signs of overheating despite the strong credit growth over the year and excess liquidity remains in the financial system. Overall, the domestic economy experienced favorable growth as projected.

The Reserve Bank maintained its current accommodative monetary policy stance. This supported the monetary policy objectives of maintaining internal and external monetary stability, promoting financial stability and a sound and efficient financial system and conducting its activities in a manner that supports macroeconomic stability and economic growth. This was by ensuring adequate level of foreign reserves was maintained above 3 – 4 months of import cover, despite annual headline inflation remaining slightly above the reference rate of 5% annually up to August 2017 although it had declined from the high level 6 months ago.

The Reserve Bank maintained its current monetary policy stance. This supported the monetary policy objectives of maintaining internal and external monetary stability, promoting financial stability and a sound and efficient financial system and conducting its activities in a manner that supports macroeconomic stability and economic growth. This was by ensuring adequate level of foreign reserves was maintained above 3 – 4 months of import cover, despite annual headline inflation rising to a very high level in February 2017 which was above the reference rate of 5% annually. This reflected the new custom duties and excise taxes introduced in July 2016, rise in global oil and food prices, seasonality in local produce, and shortage of kava-Tonga supply.

During the six months to August 2016, the National Reserve Bank of Tonga (NRBT) maintained its accommodative monetary policy stance. The NRBT’s objectives to maintain internal and external monetary stability, promote financial stability and a sound and efficient financial system, and to conduct its activities in a manner that supports macroeconomic stability and economic growth by ensuring adequate level of foreign reserves, were achieved although inflation had significantly increased in July due mainly to the enforcement of the new excise tax and customs duty introduced in July 2016.

The economic growth prospects look promising. The NRBT projected strong growth for real gross domestic product (GDP) over the three consecutive financial years 2014/15 through to 2016/17. Growth is expected to be driven by the construction, trade and tourism sectors. The Department of Statistics has yet to release its official estimates for 2014/15 financial year. The NRBT estimated Tonga’s economy to have grown strongly in 2014/15. Estimates were slightly revised upwards from the previously published projection in the August 2015 Monetary Policy Statement (MPS) due to new data received from the Ministry of Agriculture, Food, Forestry and Fisheries (MAFFF) for the fisheries sector. The NRBT expected the economy to have expanded by 3.3% in 2015/16, consistent with the International Monetary Fund (IMF) Article IV projection of 3.1% growth.

Since the last Monetary Policy Statement (MPS), activities in the real sector have generally improved in 2014/15. This supports the National Reserve Bank of Tonga’s (NRBT) estimate of 2.5% growth in Real Gross Domestic Product (GDP) in 2014/15, compared to a 2.0% growth in 2013/14 as released by the Department of Statistics, and higher than the 2.2% growth estimate in the February 2015 MPS. The upgrade in the 2014/15 growth estimate is mainly driven by improved growth in the secondary and tertiary sectors due to major events in mid-2015 such as the coronation, school reunions and church conferences, outweighing the continued negative growth in the primary sector. Consumer prices decreased over the year to August 2015 by 1.1%, in line with the deflation rate recorded in February 2015. The lower global energy and food prices contributed to the fourth month deflation since February 2015.