Monetary policy considerations should go beyond concerns of near-term economic growth and inflation, and be mindful of other issues, such as financial stability, exchange rate movements and capital flows. In particular, a monetary policy stance that is kept too loose for too long could undermine domestic financial stability because firms and individuals tend to undertake riskier investment decisions when their balance sheets look stronger than they would otherwise. In many regional economies, financial stability is already being closely monitored.
Pacific island developing countries are generally characterized by small population size and limited land area, remote geographic location and exposure to natural hazards and weather-related extremes, such as cyclones, tsunamis, droughts and floods. Based on historical frequency, the probability of a natural disaster occurring in Pacific island developing countries is estimated to be more than 20 per cent per year, which is higher than that of small States in other regions of the world.