By CentralBankNews.info
Fiji’s central bank left its benchmark Overnight Policy Rate (OPR) unchanged at 0.50 percent as the economy is poised to continue expanding for the 10th consecutive year, though at a more moderate pace than in 2018, while its twin objectives of price stability and and adequate foreign reserves remain intact.
The Reserve Bank of Fiji (RBF), which has maintained its rate since October 2011, said recent data showed a deceleration in economic activity in tandem with the slowing global economy, the government’s expected fiscal consolidation and a natural slowdown in growth after 9 years of expansion.
RBP Governor Ariff Ali said private sector credit grew by 8.3 percent in April, unchanged from March but slower than growth in the first two months, reflecting slower consumptions and investment borrowing.
On May 10 RBF lowered its 2019 growth forecast to 2.7 percent from an earlier forecast of 3.4 percent, and down from 4.2 percent in 2018, as overall aggregated demand is expected to be modest this year on slower private sector credit and consolidation in the 2019-20 national budget.
For 2020 and 2021 the central bank forecast broad-based growth of around 3.0 percent, with major contributions from agriculture, manufacturing, information and communication, wholesale & retail trade, and the accommodation & food services sectors.
The next update of economic projections is in October.
Fiji’s inflation rate fell to 2.1 percent in April from 4.0 percent in March from lower prices of food and non-alcoholic beverages, utilities and transport. By year-end inflation is expected around 3.5 percent.
Fiji’s foreign reserves were comfortable at $1,931.4 million as of May 30, sufficient for 4.2 months of import cover, down from $1,932.4 million as of April 25 but up from $1,923.7 million as of March 28.
In February the International Monetary Fund said Fiji’s economy had recovered well from several natural disasters but cautioned external conditions were becoming less favorable due to low sugar prices, higher oil prices and slowing growth in its main trading partners.
It called on Fiji’s government to speed up fiscal consolidation to rebuild fiscal space and support external stability, adding monetary policy may need to be tightened to help narrow the current account deficits and preserve foreign reserves in tandem with fiscal consolidation if less favorable external conditions persist.
The IMF forecast gross domestic product growth this year of 3.4 percent and 3.3 percent in 2020, with inflation averaging 3.5 percent this year and 3.0 percent in 2020.
The central government’s budget was seen narrowing to a deficit of 3.6 percent of GDP this year from 4.4 percent in 2018 and to 3.3 percent in 2020 while public debt was seen rising to 50.2 percent of GDP in 2019 from 49.8 percent in 2018 and then to 50.4 percent in 2020.
The Reserve Bank of Fiji issued the following press release:
In announcing the decision, the Governor and Chairman of the Board, Mr Ariff Ali, stated that the current monetary policy setting would support the Fijian economy which is set to achieve another year of economic growth, albeit at a slower pace. The moderation is in tandem with the slowing global economy, the expected fiscal consolidation by Government and the natural slowdown in growth following nine years of economic expansion. Recent indicators reveal a general deceleration in economic activity as sectoral performances were mixed. Private sector credit grew by 8.3 percent in April, unchanged from March, but slower than the growth in the first two months. The outturn was reflective of the slowdown in both consumption and investment borrowing.
Governor Ali highlighted that the Reserve Bank’s twin monetary policy objectives remain intact. Annual inflation fell to 2.1 percent in April from 4.0 percent in March owing to lower prices of food & non-alcoholic beverages; utilities and the transport categories. Headline inflation is expected to be around 3.5 percent by year-end. Foreign reserves as at 30 May stood at $1,931.4 million, sufficient to cover 4.2 months of retained imports and are expected to remain at comfortable levels over themedium term. Commercial banks’ liquidity was $329.7 million as at 29 May and is deemed sufficient to support economic activity.
The Governor concluded that in light of recent global and domestic economic developments and the outlook for the near term, the current monetary policy stance remains appropriate. However, the Bank will continue to closely monitor these developments and align monetary policy accordingly.”
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