What is Monetary Policy?
The Reserve Bank of Vanuatu is responsible for the formulation and implementation of monetary policy in Vanuatu.
By conducting monetary policy, the Bank aims to promote monetary stability as well as economic growth. Monetary policy is a process which the Bank controls the money supply and interest rates in Vanuatu. The process begins with regular surveillance and analysis of economic variables in the international and domestic economy, forming the basis of monetary policy decisions. Monetary policy decisions then involve the setting of an official interest rate, the re-discount rate. The Department of Research and Statistics, through its Policy Coordinating Policy (PCC) holds monthly meetings and produces analysis on the international economic conditions and domestic economic developments which informs advice to the Monetary Policy Committee (MPC). The decision on the appropriate monetary policy stance of the Bank is the responsibility of the MPC.
What are the objectives of Monetary Policy?
Monetary policy aims to achieve price stability, a viable balance of payments and economic growth.
The main twin objectives of monetary policy are; a) low and stable inflation rate and b) maintaining a sufficient level of official foreign exchange reserves. In maintaining price stability the Bank aims to maintain a stable value of the Vatu, both domestically and externally, which is a necessary condition for economic growth(See Monetary Policy Framework) . At the domestic level this practically means maintaining low and stable inflation, whilst the external aspect involves the maintenance of sufficient levels of official international reserves to meet the country’s external obligations. The Bank maintains that it is comfortable with inflation or the annual change in the Consumer Price Index (CPI) within the 0 to 4 percent range. The Reserve Bank aims to maintain international foreign reserves at ‘adequate’ levels above a minimum threshold of 4 months of import cover. Lastly, the Reserve Bank closely monitors economic developments and pursues proper monetary policy to create conditions conducive to economic growth.