At its meeting on the 12th ofDecember 2024, the Central Bank of Samoa (CBS) Board of Directors approved the continuation of the current Central Bank’s monetary policy for FY2024/2025. This involves continued efforts to bring down the persistent high level of excess liquidity in the financial system as well as raising or normalising its official interest rate upwards without tightening monetary policy.
The monetary policy stance will support the Samoan economy, which is now projected to grow by 6.5 percent (in real terms) in the year ending June 2025, following a 9.4 percent real GDP growth in financial year 2023/2024. This economic outlook reflects the further positive business activities associated with high tourism, remittances, and the hosting of the CHOGM meeting in October 2024. On the other hand, the Bank acknowledges that several downside risks remain, from ongoing international geopolitical tensions, expected slowdown in visitor numbers and our vulnerability to adverse weather conditions, which could adversely impact this outlook.
The headline inflation rate to date is at 2.8 percent in October 2024, declining from 3.6 percent in June 2024 and is expected to moderate to around 3.2 percent by June 2025. This reflects the global market expectations that international oil and meat prices will fluctuate slightly on the upside in Q1 2025 and decline modestly over the next 2 years. Our vulnerability, however, to natural disasters, any adverse and unexpected global developments in the international commodity markets and potential effects from the increase in the minimum wage, are potential upside risks to our inflation projections.
The country’s external sector is expected to remain strong in the remaining months of FY2024/2025, with official foreign reserves projected to be above $1.4 billion (at an equivalent of 13.8 months of import of goods only). This is more than sufficient to meet the country’s international commitments. Increased inflows from tourism and private remittances together with further inflow of capital aid funds will drive this strong position over the coming year.
The financial system continues to be sound and stable, with ample banking system liquidity currently at $619.4 million at end October 2024. The CBS official interest rate is currently around 0.72 percent, up from its level at end June 2024 and earlier in the year.
With this positive outlook and consistent with its objectives of achieving price stability, safeguarding the soundness of the financial system and in support of economic growth in the year ahead, the Central Bank of Samoa will continue to scale up its open market operations, to absorb some of the large excess liquidity in the financial system and normalise its official interest rate to a neutral target range of 2-3 percent over the next 2 years.
The Central Bank will continue to monitor and revisit its monetary policy decision should economic and financial conditions change over the next six months.