By CentralBankNews.info
Fiji’s central bank maintained its benchmark Overnight Policy Rate (OPR) at 0.5 percent, saying the current monetary policy stance was in line with its twin objectives for inflation and foreign reserves but the continuing strength in domestic demand could pose a risk.
The Reserve Bank of Fiji (RBF), which has held the OPR steady since November 2011, said the economy was expected to continue its above-trend growth this year and next, helped by the expansionary fiscal stance in the 2015 national budget along with robust consumption and investment activity, and solid performances in the key sectors of tourism and sugar.
But Barry Whiteside, RBF governor, cautioned in a statement that continued strength in domestic demand would impact the trade deficit and thus the country’s balance of payments position, “and as such may pose risks to the Reserve Bank’s twin objectives of monetary policy.”
Fiji’s foreign reserves rose to $1.788 billon as of Nov. 27 from $1.785 billion as of Oct. 31, the equivalent of 4.7 months of import cover, and are projected to remain at “comfortable levels” in the near term.
Fiji’s headline inflation remain was stable at 0.3 percent in October and the bank said it was expected to be around 1.5 percent by year-end.
Fiji’s trade deficit widened by 13 percent in the first 10 months due to a similar size increase in both exports and imports, but the central bank said in its October review that the current account deficit was supported by increasing travel and transport receipts and higher inward remittances, which were up by 14.3 percent in the year to September.
In its October review, the central bank cited a 2.4 percent increase in the Industrial Production Index in the first half of the year, showing higher manufacturing and industrial activity, while visitor arrivals were up 4.2 percent in the first nine months of the year.
Strong consumer spending was illustrated by an annual rise of 12.1 percent in net value added tax collections in the near to September while new lending for consumption purposes rose by an annual 44 percent, and imports of consumption goods rose by an annual 10 percent in the year to August.
The Reserve Bank of Fiji issued the following statement:
In announcing the decision, the Governor and Chairman of the Board, Barry Whiteside, stated that “given the buoyant developments to date and the expansionary fiscal stance in the recently announced 2015 National Budget, the domestic economy is expected to continue its above-trend growth this year and in 2015, underpinned by the sustained robust consumption and investment activity and supported by anticipated solid performances in key sectors, such as tourism and sugar.”
The Governor however, cautioned that the continuing strength in domestic demand has implications on the trade deficit and ultimately the country’s balance of payments position, and as such may pose risks to the Reserve Bank’s twin objectives of monetary policy.
Governor Whiteside further highlighted that “in its current assessment, the Board considered that both objectives of monetary policy remain intact over the near term.” Inflation was unchanged at 0.3 percent in October and is anticipated to be around 1.5 percent by year-end. Foreign reserves were $1,788.0 million as at 27 November, sufficient to cover 4.7 months of retained imports of goods and non-factor services and are projected to remain at comfortable levels in the near term.
The Governor concluded that “while the outlook for foreign reserves and inflation remain stable for now, the Reserve Bank will continue to closely monitor economic developments and will re-align monetary policy accordingly when warranted.”
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