Samoa: Selected Issues

This Selected Issues paper examines the case for transitioning the Central Bank of Samoa (CBS) from a money-targeting framework to an interest-rate-based operational framework. The analysis finds that persistent instability in money demand, reflected in frequent and prolonged deviations of real money balances from their fundamental determinants, has weakened the effectiveness of money targeting. Volatile capital flows, Samoa’s reliance on tourism receipts and remittances, and underdeveloped financial markets further complicate liquidity management and constrain monetary policy transmission. Although the near-term inflation outlook has deteriorated following the global energy shock, these pressures are expected to ease over the medium term. Against this backdrop, the paper recommends that the CBS adopt a short-term interest rate as its primary operational target, supported by strengthened liquidity management and financial market development. Such a transition would enhance the effectiveness and transparency of monetary policy implementation and improve the CBS’s capacity to respond to domestic and external shocks.