National Reserve Bank of Tonga

February 2025 Monetary Policy focuses on Strengthening Policy Transmission and Effectiveness

The National Reserve Bank of Tonga (NRBT) released its Monetary Policy Statement (MPS) for February 2025, following approval by the Board of Directors. The MPS states that since internal and external stability are expected to be maintained in the near-term, the NRBT will continue its accommodative monetary policy stance over the next six months to promote growth, while gradually strengthening its policy tools’ influence on monetary conditions, and tackle access to finance barriers.

The Statutory Reserve Deposit (SRD) ratio will remain at 15 percent. Over the next six months, the NRBT will introduce a new policy rate, transitioning from a floor rate to adopting a standard mid-rate as its policy rate. This change will provide a clearer indication of the overnight interest rate. Additionally, the interest rate on banks’ Exchange Settlement Accounts (ESA) at the Reserve Bank will continue to be 0 percent. The NRBT will also implement the issuance of NRBT Notes to mop up the excess liquidity to strengthen the transmission channel. Governor Tatafu Moeaki stated, that “The new MPS commits to modernizing policy instruments for the NRBT to be more effective in influencing market interest rates and inflation. We will also review the currency basket composition to be more stable and minimize pass-through effect on inflation. The weak monetary conditions requires closer coordination with the Government as the driver for fiscal policy, to be more effective in achieving key macroeconomic stability outcomes such as price stability to address the supply side gaps, and promoting the domestic sector’s stability.”

The NRBT projects a gradual increase in inflation, but still remain below the 5% reference rate in the near term, however risks are tilted to the upside. Positive economic recovery is projected to continue in the next fiscal year. These developments and outlook allows the NRBT some policy space to mop up the excess liquidity and introduce market-based tools that will enhance monetary policy interventions.

Electronic copy of the MPS is available from this link or email This email address is being protected from spambots. You need JavaScript enabled to view it.

For further details, please contact:

Economics Department
Telephone: (676) 24057
Email: This email address is being protected from spambots. You need JavaScript enabled to view it.