The Central Bank of Samoa (C.B.S.) has approved the "loosening of its monetary policy stance" for the rest of the 2022/2023 financial year.

In a written statement issued last Friday, the C.B.S. said the Central Bank Board approved the new monetary policy stance in its 3 March 2023 meeting, after factoring in the adverse effects of the Russia-Ukraine war, and the decision by major global economies to tighten their monetary policies after three consecutive years of negative economic growth.

According to the January 2023 World Economic Outlook by the International Monetary Fund (IMF), the global economy is expected to expand by 2.9 percent in 2023, down from 3.4 percent in 2022, according to the C.B.S.

The C.B.S. said the weakening in global economic activities partially reflected the reduction and removal of earlier fiscal and monetary stimulus, as most major central banks attempt to tighten economic activities to slow down the current strong inflationary pressures worldwide.

For Samoa, the C.B.S. said the latest national accounts figures showed that the economy recorded a 4.7 per cent rebound in September 2022 quarter in line with the reopening of international borders. 

Latest monthly economic indicators such as remittances, exports, and visitor earnings point to a similar or even higher growth for the December 2022 quarter, said the C.B.S. 

Coupled with the expansionary fiscal policy approved by Parliament for FY2022/23 and the strong pickup in business activity so far, real GDP is expected to expand by around 3.0 percent for the whole year 2022/2023.

On the other hand, the C.B.S. said inflation has risen steadily in the past 15 months and peaked at 11.3 per cent in November 2022, and started to come down to 11.0 per cent in December 2022. Imported (prices) inflation has started to ease so far, given the aggressive monetary tightening by advanced economies around the world. However, domestic inflation is rising steadily and is yet to peak. All in all, inflation is expected to drop to around 10.0 percent by June 2023 and continue to slow down for the remainder of 2023.

On the external sector, the C.B.S. said proceeds from the export of goods, remittances, and visitor earnings all recorded strong improvements in the first six months to December 2022. In addition, imports of goods have also expanded significantly in the first half of the year. 

The outlook for FY2022/23 points to a 41.4 per cent rebound in exports of goods driven by a strong recovery in fish and coconut oil exports. According to the C.B.S. visitor earnings continue to exceed its original forecast given the strong demand from overseas families and friends to visit Samoa, while remittances are again expected to increase by another 6.4 per cent during the year. 

Mitigating these large inflows is the expected rise in import payments to around 19.2 percent in FY 2022/2023. All in all, total foreign reserves are expected to improve by around $35.0 million to a total of $842.90 million by June 2023, or around 9.4 months of imports in FY 2022/23.

Despite the expected level of inflation staying above the 3.0 percent inflation target, the CBS Board felt that monetary policy should remain eased to support and ensure economic recovery is fully realised and entrenched, after a long period of depression. 

Furthermore, inflation is starting to recede gradually from January 2023 onwards and would be at around 10.0 percent by June 2023. The strong and comfortable level of our international reserves also supports this easing of the monetary policy stance.