BY JENNIFER KUSAPA
Central Bank has announced an accommodative monetary policy stance in gearing towards taming inflation over the next six months.
In a press conference yesterday CBSI deputy governor Mr Reynold Moveni said CBSI Board of Directors held a special meeting to discuss and endorse the monetary policy stance.
He said the action taken by CBSI will help contribute towards taming prices, slow down the rate of inflation the country will be facing.
He explained that the monetary policy is one key mandate for CBSI under Act 2012 and it mainly covers the requirement to ascertain the appropriate level of supply of money into the economy, for purposes of making sure financial stability is achieved within the economy
It is to continue supporting the economic recovery while ensuring inflation remains intact or avoid it spiraling too high. Against this, CBSI will be keeping unchanged the Cash Reserve Requirement and Bokolo Bills. However, CBSI will be vigilant and flexible to incoming data especially on the upward risks to inflation and take appropriate actions as needed.
He said the country’s economy is still weak based on their assessment the conditions still weak, and they are projecting three percent moderate of the GDP.
“So overall the country’s economy is weak,” Moveni said.
He said that Economic activity weakened, disrupted by the lingering effects of COVID-19 including community transmission in the first quarter a spill-over effects from the war in Ukraine. All sectors remained subdued, however, communication and investments especially in public constructions showed some signs of rebound. Inflation continues on an upward trend climbing to 3.9% in June 2022 from 2.5% in December 2021 largely soaring global fuel and food process in the global market. Monetary conditions too have showed while current account of the balance of payments remained in deficit due to subdued exports.
Meanwhile Moveni highlighted that global conditions deteriorated as the Ukraine was had brought in a new set of added challenges to the lingering effects of COVID 19, further compounding the disruptions to the supply chains globally and the associated spikes in inflation and commodity prices. IMF revised downwards its growth projections with significant downgrades in the United States, China, and Euro Area. Global inflation has also been revised upwards.
The Solomon Islands as a small open economy would feel the pinch of these deteriorating effects on global conditions on export demand and inflation. Inflation outlook is revised up than was anticipated in March 2022 Monetary Policy Statement owed to greater increase in imported inflation, in particular, imported fuel and food prices, and pass-through effects in the domestic prices.
The Outlook for the domestic economy for this year is expected to recede at a smaller decline of negative 4.3%. The economy is projected to slowly recuperate in the second half of this year boosted primarily by the opening of borders, lifting of mobility restrictions as well as the ramping up of the construction of key national projects and road up-grades in Honiara and the provinces. This construction-led growth is anticipated to linger into 2023 as spill over effects from the Pacific Games benefits other sectors.
Nonetheless, risks to both these outlooks are considerable. Spill over effects from the Ukraine war through higher fuel and food prices and persistent higher global inflation could swiftly change these outlooks.