Monetary policy is the process by which the Central Bank of Solomon Islands controls the supply of money, the availability of money, and the cost of money (or interest rate), in order to attain a set of objectives oriented towards the growth and stability of the economy.

Monetary policy aims, by and large, to control the money stock.  The factors which influence the money stock are:

  • Issue of notes and coins by a central bank;
  • variations in government’s cash holdings and deposits with a central bank and/or commercial banks;
  • changes in loans and advances to government and/or in holdings of treasury bills and other government securities by a central bank and/or commercial banks;
  • changes in the foreign exchange reserves of a country;
  • variations in the statutory cash reserve requirement and the liquid assets ratio;
  • changes in a central bank’s discount rate, also referred to as the Bank rate; and
  • adjustments in commercial banks’ desired level of excess reserves.