National Reserve Bank of Tonga maintains neutral stance while strengthening monetary policy transmission

Policy Decision: The National Reserve Bank of Tonga (NRBT) Board of Directors has approved “maintaining a neutral monetary policy stance for the next six months”. The monetary policy rate will remain at 2 percent, the interest rate corridor will be maintained at 0 – 4 percent, and the Statutory Reserve Deposit rate will remain unchanged at 15 percent. Headline inflation increased to 9.3% in July 2026, well above the NRBT 5% reference rate and highest since January 2024. This increase is adding to costs of living for households and raising costs for businesses, placing further strain on already constrained budgets. Inflation has been driven mainly by external supply-side shocks and, while elevated, remains below the higher level projected for second half of 2026. Governor Moeaki stated that “domestic demand pressures appear contained, foreign reserves adequate, the financial system remains stable. At the same time, NRBT continues to strengthen monetary policy transmission as part of its broader modernization so that monetary policy can more effectively influence liquidity, interest rates, credit conditions and ultimately inflation.” - While headline inflation is expected to remain above the reference rate in the immediate term, it is expected to ease below the reference rate by end of FY2027 as global uncertainties and climate change continue to pose risks to this outlook. - The Government’s targeted FY2027 fiscal support to ease impact of external supply shocks and high inflation are helpful to reduce the cost pressures onhouseholds and businesses, including temporary assistance for electricity and outer-island transport, support for the elderly and people with disabilities, and concessional financing for SMEs and businesses. - Foreign reserves remained above required thresholds and are expected to stay adequate in the near term whilst the medium-term outlook is tilted to the downside, reflecting heightened uncertainty. - Excess liquidity has declined in June 2026, reflecting growing confidence of the market in NRBT Notes as the new norm of monetary policy operations. Credit growth moderated to 4.9 percent in June 2026, with interest rates broadly stable. - Published estimate of real GDP growth for FY2025 at 4.4 percent, much higher than expected where growth is expected to moderate in 2026 and 2027. The stance will remain data-dependent where NRBT stands ready to adjust monetary policy if demand-side inflationary pressures, or second-round effects intensify. To guide its assessment, NRBT will closely monitor core inflation and second-round effects, domestic credit and liquidity conditions, foreign reserve adequacy and exchange-rate pressures, remittance and imported-price developments, and progress in absorbing excess liquidity through NRBT Notes. 27 August 2026. Electronic copy of the MPS is available from our website www.reservebank.to -- Matangi Tonga Online ref. #9472 National Reserve Bank of Tonga 29 aug - 29 Sep 2026