By CentralBankNews.info
Fiji’s central bank left its benchmark Overnight Policy Rate (OPR) steady at 0.5 percent, a decision the bank said was “necessary to encourage investment and further strengthen growth in the economy.”
The Reserve Bank of Fiji, which has maintained its rate since October 2011, said the country’s economy was still recovering after damage to agriculture, manufacturing, mining, construction and utilities by natural disasters in February and storms in December.
Consumption and investment activity have remained buoyant, helped by fiscal support, inflows of remittances, accommodative monetary policy, tourist earnings and favorable labor market conditions, boosting consumer spending and investor sentiment, the central bank said.
Fiji was hit by Tropical Cyclone Winston in February, the worst cyclone ever recorded in the Southern Hemisphere, leaving 42 people dead. The government estimated damage of 1 billion Fijian dollars, or US$460 million. Fiji was also hit by flooding in April.
A shortage of food and other items following the disaster pushed up inflation to a 2016 high of 5.9 percent in July but since then inflation has decelerated and fell to 3.9 percent in December.
In its previous statement from October the central bank had revised upward its 2016 inflation forecast to 5.0 percent from 3.5 percent previously expected.
Today the central bank added that it expects domestic factors to continue to drive inflation in the short term with year-end inflation currently forecast around 2.5 percent.
Fiji’s foreign reserves remain adequate at US$1.906 billion as of Jan. 25, down from around $1.983.6 billion as of Oct. 27, 2016.
The Reserve Bank of Fiji issued the following statement:
The Governor and Chairman of the Board, Mr Barry Whiteside announced the board decision stating that, “the economy remains on a recovery path as reconstruction works continue following TC Winston and given the damage caused by the tropical depression in December on the key sectors for agriculture, manufacturing, mining, construction and utilities. However, despite the setbacks from the natural disasters, consumption and investment activity have remained buoyant, signalled by positive trends in partial indicators. Supportive fiscal measures, accommodative monetary policy settings, together with inflows of remittances and tourist earnings and favourable labour market conditions, have boosted consumer spending and investor sentiments.”
Mr Whiteside added that global economic conditions remain subdued underpinned by weaker outcomes in emerging markets and developing economies. Global growth for 2017 is expected to improve to 3.4 percent from a lower 3.1 percent estimated for last year, supported by an improved outlook for advanced economies. Notably, potential policy changes by the new United States administration and its impact across the globe represent the key downside risk to the current global growth outlook.
On the dual mandates of the RBF, inflationary pressures in 2016 largely emanated from domestic supply side factors following the natural disasters earlier in the year. However in December, inflation fell to 3.9 percent from 4.3 percent in November 2016. Inflation in the near term is expected to continue to be domestically driven with major downside risks stemming from adverse weather conditions and a sharp increase in oil and food prices. For now, year-end inflation is projected at around 2.5 percent.
With the modest performance of Fiji’s external sector, foreign reserves levels remain adequate, currently (25 January) at $1,906.0 million, sufficient to cover 5.1 months of retained imports of goods and non-factor services.
The Governor highlighted that the Bank will continue to closely monitor the latest developments and risks to the global and domestic economic outlook and align monetary policy accordingly.”
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