Fiji’s central bank left its benchmark Overnight Policy Rate (OPR) steady at 0.50 percent and while it said there were no immediate threats to its twin objectives, the prospects for economic growth were now lower and it cut its inflation forecast.
The Reserve Bank of Fiji (RBF), which has maintained its rate since October 2011, lowered its forecast for inflation this year to average 2.0 percent from an earlier forecast of 3.0 percent.
In August Fiji’s inflation rate fell to 1.2 percent from 4.3 percent in August last year but was up from 0.7 percent in July.
RBF’s monetary policy objectives include an adequate level of foreign reserves and price stability. While the bank does not have a formal inflation target, it is generally comfortable with inflation of around 3-5 percent.
Foreign reserves rose slightly to $2,173.7 million as of Sept. 26 from $2,160.2 million on Aug. 30, enough to cover five months of imports and are expected to remain at comfortable levels over the medium term, RBF’s Governor Ariff Ali said in a statement.
“Given these developments, the Governor cautioned that while there were no immediate threats to our twin objectives, growth prospects for 2019 and the medium term are relatively lower,” he said, adding domestic economic activity remains subdued given weak sugar, gold and timer output.
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Aggregate demand has also eased with a slowdown in consumption and investments but higher tourist arrivals underscore the continued resilience of the tourism industry, helping strengthen the country’s external position as imports were subdued.
Fiji’s economy grew 4.2 percent in 2018.
The Reserve Bank of Fiji issued the following press release:
The Governor and Chairman of the Board, Mr Ariff Ali stated that “global economic activity remains sluggish, with latest economic indicators suggesting a further slowdown especially in Fiji’s major trading partner economies. In addition, the recent drone attacks on Saudi Arabia’s largest oil production facilities disrupted output and temporarily raised crude oil prices, reversing the downward trend noted in the past few months.” Nevertheless, oil prices are expected to stabilise in the near term as supplies are restored. Additionally, the on-going trade war between the United States and China, geo-political and technology disputes, along with the uncertainty surrounding Brexit remain key risks to the global outlook moving forward.
Mr Ali noted that the “domestic economic activity remains subdued given weak sugar, gold and timber output to date. Also, aggregate demand conditions have moderated with the slowdown noted in consumption and investment activities. Nevertheless, higher visitor arrivals in the year to August underscore the continuing resilience of the tourism industry.” Consequently, higher tourism earnings and strong remittance inflows have further strengthened Fiji’s external position, against subdued imports.
Given these developments, the Governor cautioned that while there were no immediate threats to our twin objectives, growth prospects for 2019 and the medium term are relatively lower. Inflation was 1.2 percent in August compared with 4.3 percent recorded in August 2018. Year-end inflation is now expected to be 2.0 percent, a downward revision from the 3.0 percent projected earlier.
Foreign reserves are currently around $2,173.7 million as at 26 September 2019, sufficient to cover 5.0 months of retained imports and are anticipated to remain at comfortable levels over the medium term. Against this backdrop, Governor Ali concluded that “the Reserve Bank will continue with its accommodative monetary policy stance to support domestic growth, while closely monitoring global and domestic developments as well as risks to the macroeconomic outlook and align policy where appropriate.”
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