Monthly Economic Review for March 2019
- Details
- Category: Economic Releases
- Last Updated: 20 May 2019
Dim global outlook remains
The global economy is still expected to ease further and slow down in 2019 as shared by Bloomberg. This is evident with stabilising economic activity in major economies such as the US, UK, and China. The US, however, did experience a modest pickup in retail sales. Despite the growth remaining positive, the US economy grew at a slower pace. Australia and New Zealand are expected to follow the global trend and experience slowdowns. The Deputy Governor of the Reserve Bank of Australia (RBA) reported in March that Australia’s economy has been weaker than expected due to slower consumption growth and disruption to resource exports. The Reserve Bank of New Zealand (RBNZ) stated that they are considering revising their Official Cash Rate (OCR) downwards reflecting weaker global economic activity and reduced momentum in domestic spending.
Mixed domestic economic growth for March
Domestically, economic activities were mixed during the month. Primary sector activities varied with the total volume of agricultural exports increasing slightly by 2.7 tonnes (0.9%) to 311.9 tonnes. This was attributed to the increase in the export of root crops which rose by 7.9 tonnes (3.2%). Yam crops mainly drove the increase, reflecting the harvest season of late yams. This offset the respective declines in the export of cassava and taro by 15.3% and 8.0%. However, lending for the agriculture sectors rose by 8.3% as farmers prepare for the squash planting season. Activities in the secondary sector slowed in March. This was reflected in loans extended to the construction and mining & quarrying sectors, which declined by 4.9% and 12.1% respectively. Furthermore, housing loans declined by 0.1%, and lending to the manufacturing sector also declined by 1.6%. On the other hand, the tertiary sector slightly improved over the month, supported by the number of container registrations which rose by 161 registrations due solely to the increased volume of private containers by 237 registrations (offsetting a decline in business container registrations). International air arrivals also rose by 8.9% and the arrival of four cruise ships during the month may have supported the tourism sector.
Lower employment opportunities
The total number of job advertisements declined by 6 vacancies over the month of March 2019 led by lower recruitment intentions in the services sector. However, the positive outlook for the economy supports the expectation for increased demand for labour in the near term and thereby lower the unemployment rate.
Annual headline inflation remains below 5% NRBT reference rate
Headline inflation increased over the month by 0.5% mainly driven by the rise in the prices of local food. Domestic inflation rose by 0.6% at the end of March 2019 due mainly to the availability of local food such as cassava, tomatoes, cabbage, eggs, and tuna. The imported prices also increased by 0.4% reflecting the impact of the increase in prices of petrol and diesel which rose by 2.9% and 3.0%, respectively, due to higher global oil prices. The annual headline inflation was 2.0% in March. Local component of inflation contributed 2.3 percentage points to the overall headline inflation. This was attributed to the rise in prices of tobacco, restaurants and hotels, house equipment services, and the seasonality of local food whereas the imported prices contributed a -0.3 percentage points to the overall headline inflation mostly from lower prices for imported foods such as chicken legs, fruits, flour, and transport services. The weaker NZ dollar may have contributed to the fall in imported food prices.
Exchange rates remain competitive
The Nominal Effective Exchange Rate (NEER) index marginally slightly rose over the month due to a depreciation of the GBP, EUR, AUD and NZD against the TOP, suggesting a general strengthening of the domestic currency. Additionally, the Real Effective Exchange Rate (REER) increased over the month due to Tonga’s higher inflation rate relative to its major trading partners.
Higher Current Account Payments in March
Official foreign reserves held by the National Reserve Bank of Tonga (NRBT) declined by $8.5 million over the month of March, equivalent to 7.8 months of imports. The monthly movement was attributed mainly to higher import payments and loan repayments.
The Balance of Payments (OET) deficit widened over the month due to movements in the financial account and current account payments. This was reflected in increased payments for external loan repayments and an increase in total import payments mainly for oil. Other payments which also rose included services and private transfers for travel related expenses, professional and telecommunication services.
The total receipts in March rose due to higher current account receipts for construction services, travel receipts and insurance claims. The $3.1 million rise in remittances also supported the increase in receipts. Capital transfers for both official and private investment projects drove higher receipts in the capital account whilst higher interbank receipts drove the rise in the financial accounts.
Over the year, the OET balance recorded a surplus of $17.3 million due to surplus in the capital account. However, this was a lower overall surplus due mainly to the widening in the merchandise trade deficit over the year.
Decline in broad money continues
Broad money fell again this month due to lower net foreign assets offsetting the increase in net domestic assets. Loan repayments coupled with oil and other import payments lowered the foreign reserves and resulted in the decline of the net foreign assets while net credit to government rose on the decrease in government deposits resulting in an increase in net domestic assets. Annually, broad money continued to rise led by an increase in both net domestic assets and net foreign assets. The receipts of budgetary support, grants, cyclone relief funds from development partners and remittances supported the higher foreign reserves and the rise in net foreign assets while higher credit to the private sectors contributed to the increase in net domestic assets.
Excess liquidity remains
The decline in the banks exchange settlement accounts (ESA) coupled with lower required reserves and currency in circulation decreased the liquidity in the banking system over the month by $15.2 million to $305.4 million.
The transfer of government deposits from the commercial banks to the Reserve Bank, lower deposits to the Reserve Bank vault by the commercial banks mainly drove the ESA lower. The banks’ total loans to deposit ratio increased over the month from 76.0% in the previous month to 78.1%, reflecting the fall in deposits which outweighed the growth in loans.
Slow credit growth maintained
Credit growth slightly increased by 0.2% over the month. However, over the year, a growth of 9.3% was recorded with a total lending of $484.9 million.
The monthly rise was largely driven by increased lending to public enterprises while the annual increase was a combination of higher lending to both public and private enterprises, mainly transport, distribution, construction sectors, and housing loans.
Weighted average interest rate spread narrowed
The weighted average interest rate spread narrowed, by 16.6 basis points to 6.22%, due mainly to lower lending rates offsetting the increase in deposit rates. The lower lending rates offered to the public sector solely drove the lower lending rates while the increased demand deposit rates led to the rise in deposit rates.
Over the year, the weighted average interest rates spread widened by 39.1 basis points as a result of higher weighted average lending rates offered mainly to the tourism, manufacturing and fisheries sectors as well as for household’s housing and other personal loans. On the other hand, the decline in time and demand deposit rates led the annual decrease in the weighted average deposit rates.
Outlook
The Reserve Bank expects domestic economic activity to remain positive in the medium term. Furthermore, the foreign reserves is expected to remain at comfortable levels and inflation to continue remaining below the Reserve Bank’s inflation reference rate of 5% per annum throughout 2019. The Reserve Bank will continue with the current monetary policy measures to ensure external viability and macroeconomic stability is maintained.
1 - Revisions to the Months of Imports was due to the receipt of updated Trade data from the Statistics Department for June & September 2018 quarter.
Monthly Economic Review Releases
Monthly Economic Review Releases for 2019
 |
March Released on 16 May 2019 | 129 KB |
||
|
January Released on 14 March 2019 | 129 KB |
|
February Released on 23 April 2019 | 129 KB |
2018
|
November Released on 18 January 2019 | 115 KB |
|
December Released on 15 February 2019 | 121 KB |
|
October Released on 27 December 2018 | 361 KB |
|
September Released on 27 November 2018 | 383 KB |
|
July Released on 21 September 2018 | 383 KB |
|
August Released on 11 October 2018 | 383 KB |
|
May Released on 3 August 2018 | 171 KB |
|
June Released on 21 August 2018 | 431 KB |
|
March Released on 14 May 2018 | 165 KB |
|
April Released on 18 June 2018 | 395 KB |
|
January Released on 16 March 2018 | 400 KB |
|
February Released on 11 April 2018 | 494 KB |
2017
|
December Released on 16 February 2018 | 422 KB |
|
November Released on 22 January 2018 | 414 KB |
|
October Released on 18 December 2017 | 125 KB |
|
September Released on 1 December 2017 | 317 KB |
|
August Released on 1 November 2017 | 391 KB |
|
July Released on 6 October 2017 | 423 KB |
|
June Released on 28 August 2017 | 125 KB |
|
May Released on 2 August 2017 | 403 KB |
|
April Released on 10 July 2017 | 421 KB |
|
March Released on 8 June 2017 | 121 KB |
|
February Released on 27 April 2017 | 425 KB |
|
January Released on 30 March 2017 | 420 KB |
2016
|
December Released on 3 March 2017 | 421 KB |
|
November Released on 3 February 2017 | 398 KB |
|
October Released on 16 December 2016 | 448 KB |
|
September Released on 15 November 2016 | 532 KB |
|
August Released on 21 October 2016 | 196 KB |
|
July Released on 29 September 2016 | 839 KB |
|
June Released on 25 August 2016 | 822 KB |
|
May Released on 21 July 2016 | 665 KB |
|
April Released on 21 June 2016 | 481 KB |
|
March Released on 20 May 2016 | 475 KB |
|
February Released on 26 April 2016 | 932 KB |
|
January Released on 29 March 2016 | 461 KB |
2015
|
December Released on 24 February 2016 | 593 KB |
|
November Released on 18 January 2015 | 709 KB |
|
October Released on 23 December 2015 | 320 KB |
|
September Released on 18 November 2015 | 395 KB |
|
August Released on 23 October 2015 | 405 KB |
|
July Released on 22 September 2015 | 365 KB |
|
June Released on 14 August 2015 | 490 KB |
|
May Released on 24 July 2016 | 383 KB |
|
April Released on 15 June 2015 | 500 KB |
|
March Released on 18 May 2015 | 523 KB |
|
February Released on 17 April 2015 | 375 KB |
|
January Released on 11 March 2015 | 395 KB |
ECONOMIC RELEASES