MONETARY POLICY FOR THE FISCAL YEAR ENDING JUNE 2016

Wednesday, 5 August 2015:  At its Board Meeting on 31 July 2015, the Central Bank Board of Directors approved the continuation of its easing of monetary policy stance for the financial year 2015/16.

In making its decision, the Board took into account the current sluggish growth in the Samoan economy as well as the decline in gross official reserves in 2014/15.

The July 2015 World Economic Outlook published by the International Monetary Fund pointed to a 3.35 percent growth in the world economy, revised down from earlier estimates due to lower than expected growth estimates for both advanced and emerging economies.

Closer to home, the macro-economic conditions are lower in Australia and New Zealand than initially assessed. Australia and New Zealand are Samoa’s main trading partners.

Samoa’s latest National Accounts figures show that the economy grew by 1.4 percent in the twelve months at the end of March 2015, down from 1.9 percent in the same period to the end of September 2014. For the financial year ending June 2015, we are estimating the economy to have grown by 1.7 percent.

Parliament approved another expansionary fiscal policy for 2015/16.  Overall, the Government Budget deficit is approximately 4.7 percent of GDP[1].

Inflation remains stable at 1.9 percent at the end of June 2015.  It is expected to rise to 2.2 percent in 2015/16 due to a gradual pickup in domestic inflation. Real GDP is expected to grow by 2.3 percent in line with expected improvements in exports, remittances and visitor earnings.  These growth factors will prop up international reserves at a comfortable level of around 5.2 months of imports in 2015/16.

With manageable inflationary pressures and the expected comfortable level of our international reserves in 2015/16, the Board felt that monetary policy should remain loosened in order to support economic growth.

Despite an 11.2 percent growth in 2014/15, total credit growth is expected to slow down.  Hence, monetary policy will aim at either holding market interest rates at their current low levels or further reduce its rates in order to stimulate private sector demand and investment.

[1] This is lower than the 2014/15 budget deficit of 6.6 percent of GDP (Change in the treatment of budget support from World Bank, Asian Development Bank, Australia, New Zealand, EU etc.)

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