Monetary policy was tightened from mid-2002 up to mid-2003 due to inflationary pressures as the kina depreciated to an all time low. The recent fiscal discipline of the Government, improved international commodity prices and exports, and confidence in the macroeconomic management of the economy has seen a recovery in our economy.
This has lead to high international reserve levels at the Central Bank, stability in the exchange rate and declining inflation. The Central Bank therefore eased monetary policy in the second half of 2003 and has maintained this stance in 2004 to stimulate economic activity. Whilst there are favourable economic indicators, lending by the commercial banks remain flat.