The decline in inflation and positive growth are two of the reasons why the Central Bank of Samoa is continuing with its current monetary policy stance.

In a statement, the CBS said it would continue to reduce the high level of liquidity that exists in the financial system as well as continue its efforts to normalise or adjust its official interest rate upwards without signalling a tightening of monetary policy.

Samoa’s inflation is declining although it remains above its medium-term target of 3.0 percent, economic growth remains positive, with a strong recovery to date, foreign reserves continue to remain high and the financial sector remains sound but highly liquid.

According to CBS, headline inflation continues to be moderate, falling to 6.6 per cent at the end of February 2024, from 12.0 per cent at the end of June 2023. This reflects a sharp drop in both the imported and local components of headline inflation since June last year.

Similarly, the underlying inflation rate is also down to 8.8 per cent at the end of February 2024 compared to 14.2 percent at the end of June 2023. Looking ahead, the headline inflation rate is expected to drop further to 5.0 percent by the end of June 2024 as prices continue to come down from highs in the past two years.

The nation’s real Gross Domestic Product in the 12 months to September 2023 quarter recorded a 10.4 per cent growth rate, which is higher than the 8.0 per cent recorded for FY2022/23 and -5.3 percent for FY2021/22.

The source of this strong growth reflects the exceptionally large expansion in the Commerce and Personal and other services sectors, stemming from strong tourism activity as well as high tax collection. Real GDP growth for FY2023/24 is expected to remain positive, albeit slowing down to 6.3 per cent as the initial surges in post-COVID business activities start to wind down.

“Robust economic activities to date and the associated spending on preparations for the hosting of the upcoming Commonwealth Heads of Government Meeting (CHOGM) later this year will drive this growth momentum towards the end of June 2024,” said the CBS.

Gross foreign reserves currently stand at $1.3 billion at the end of February 2024, an increase of $207.2 million from the end of June 2023. This level of foreign reserves is sufficient to buy around 13.1 months of import of goods only. In the first eight months of FY2023/24, total exports and imports are down by 0.9 per cent and 1.2 per cent respectively. Meanwhile, total visitor earnings are up by 91.8 per cent while the inflow of remittances is up by 2.1 per cent, compared to thr same period of FY 2022/23.

For the whole year FY2023/24, total foreign reserves are expected to increase further due mainly to expected increases in grant and budget support inflows for the Government as well as improvements in visitor earnings.

The banking system continues to remain strong, with a combined capital adequacy ratio of 33.8 per cent in January 2024, higher than its levels in December 2023 and January 2023. Similarly, the non-performing loans (NPLs) of the banking sector at the end of January 2024 stood at $59.7 million, down from December 2023 but slightly higher than January 2023.

However, the banking system’s average liquidity in the seven months to the end of January 2024 continues to build up, jumping to an average of $613.7 million. The bulk of this increase mainly reflects a significant hike in the average exchange settlement accounts (ESA).

According to the CBS, as the financial system continues to be saturated with liquidity, the focus of monetary policy will be to continue to absorb (some of) that excess liquidity through its open market operations. With its latest inflation and economic growth outlook, CBS will continue with efforts to normalise its official interest rate path bringing it up to around 2-3 per cent range over the medium term.   This will include the issuance of longer term CBS Securities and ongoing discussions with all the financial institutions.