Fiji’s central bank left its benchmark Overnight Policy Rate (OPR) steady at 0.5 percent, saying the current easy monetary policy stance remains appropriate as “accommodative macroeconomic policies are needed to raise growth whilst maintaining price and external stability.”
The Reserve Bank of Fiji (RBF), which has not changed its rate since October 2011, said its monetary policy objectives, which include adequate foreign exchange reserves and price stability, remain intact and its current accommodative policy stance is supported by surplus bank liquidity of more than $600 million at the end of November.
Earlier this month RBF slashed its forecast for economic growth this year to 1.0 percent, the slowest growth rate in a decade, from May’s forecast of 2.7 percent and down from 3.5 percent in 2018.
In today’s statement, Ariff Ali, governor and chairman of RBF, said aggregate demand had softened as expected and private sector credit growth had slowed further in October.
Data for the first 9 months of the year show demand was weakening due to weak business and investor sentiment as well as lower government spending, with most business sectors expected to decelerate, RBF said on Nov. 7.
On the upside, commercial banks’ profitability has improved, visitor arrivals are up along with the fishing sector and education, health and information and communications sectors.
Growth in 2020 is expected to pick up to 1.7 percent as both domestic and global economic sentiments are expected to improve, with growth in 2021 seen rising to 2.9 percent and then to 3.0 percent in 2022.
The growth in tourism and remittances is underpinning stable foreign reserves but inflation turned negative in October, falling to minus 0.9 percent from a positive 0.4 percent in September, the first deflation since November 2014, with prices declining in all major categories.
“Given that aggregate demand is forecast to remain soft, demand side inflationary pressures are forecast to be broadly muted in the near-term,” RBF said.
Fiji’s foreign reserves amounted to $2.190 billion at the end of November, enough to cover 5 months of imports, and are forecast to remain at comfortable levels in the medium term.
The Reserve Bank of Fiji issued the following statement:
The Governor and Chairman of the Board, Mr Ariff Ali, stated that while the Bank’s twin objectives remained intact, major sectoral performances to date have been mixed and aggregate demand has softened in line with the 1.0 percent revised growth forecast for 2019. He added that in line with the latest business expectations and retail sales surveys, private sector credit growth further slowed in October.
Inflation has been decelerating since the middle of the year and has turned negative. Consumerprices declined annually by 0.9 percent in October compared with the 0.4 percent increase noted a month earlier and is much lower than the 5.2 percent growth recorded in the same month a year ago. All major categories noted a decline in prices, with the exception of food & non-alcoholic beverages. Given that aggregate demand is forecast to remain soft, demand side inflationary pressures are forecast to be broadly muted in the near-term.
In addition, balance of payments vulnerabilities have subsided. The decline in imports amid continuous growth in tourism and remittance receipts has led to an improvement in foreign reserves of around $180 million since the end of 2018. Foreign reserves were $2,190 million at the end of November, sufficient to cover 5.0 months of retained imports of goods and services and are forecast to remain at comfortable levels over the medium-term given the modest outlook for import growth and uptick in tourism and remittance inflows.
While the Reserve Bank’s monetary policy objectives are intact, accommodative macroeconomic policies are needed to raise growth whilst maintaining price and external stability. Therefore, the current accommodative monetary policy stance remains appropriate and is supported by surplus bank liquidity which was above $600 million throughout November.”
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