Financial Markets Department

GENERAL INFORMATION
Financial Markets is the Department that carries out the Bank's transactions with the financial markets both in Samoa and overseas. It is the Department that actually implements monetary policy through its two divisions – the Domestic Markets and International Markets.

The Domestic Markets Division has the following roles:
1. Conduct Open Market Operations (OMO). Open Market Operations involve the buying and selling of Central Bank Securities to influence the volume of money and subsequently, the level of interest rate in the financial system. When the Bank issues or sells securities, it removes funds from the financial system, tending to push up interest rates. Buying securities, or redeeming securities without replacing them, has the opposite effect. Many things can affect the volume of funds in the system on any given day. The level of foreign exchange transactions, the demand for currency and level of Government transactions can all have an impact.

Unless there is a need to change policy, the Department will be working to keep the level of available funds roughly constant. That is, it will try to offset the impact of the other transactions by buying or selling securities. In this way interest rates will be stable and the policy pursued will remain. In the event that a decision is taken to adjust the policy setting, the Department will attempt to add to or offset the effects of other transactions to reduce or increase the availability of funds. In this way it will put the decisions into effect by forcing interest rates up or down.

The Department naturally needs to work out whether the level of funds available to the financial system is too high, too low or just right, and whether it will rise or fall in the near future. An important part of the Department's work, therefore, is to forecast transactions that will have an impact on the level of funds in the system.

2. Monitor the Foreign Exchange Controls implemented by the Bank. Exchange Control policies and procedures are reviewed on a regular basis and will take into account the prevailing economic conditions. It aims to facilitate overseas payments for the general public and business community while maintaining an adequate level of official foreign reserves.

3. Monitor the use of the Credit Line Facility (CLF), which is another tool for monetary policy that was established following the 2009 Tsunami and global economic recession. The CLF was a way to inject much needed funds into the economy, providing competition to the banking system and aimed at reducing lending rates.

The International Markets Division has the following roles:
1. Set the rate of exchange for the Sāmoa Tala against the United States Dollar each morning. In general, the exchange rate is held fixed against the average value of the currencies of Australia, the European Union, New Zealand and the USA. As the values of these overseas currencies vary every day against each other, the average must be recalculated each morning to reflect the changes.

2. Undertake the buying from or selling of US Dollars to the commercial banks each day at the buying or selling rate calculated in the morning.

If the Bank has decided that a change in the exchange rate is necessary, the Financial Markets Department will calculate an adjusted average exchange rate to reflect the required change. Then it will re-work the actual rates for each currency, based on the average. Its trading in US Dollars will then take place at the new rate for the currency.

3. Manage the investment of the Central Bank's foreign currency holdings. These are invested in top quality assets in a number of different currencies. The objective is to ensure that the country’s need for foreign currency is always met, while at the same time obtain a reasonable rate of return without undue risk from its investments.