Press Release No. : 19/2021
Date : 28 October 2021
The Reserve Bank of Fiji Board maintained the Overnight Policy Rate at 0.25 percent following its monthly meeting on 28 October 2021. The Governor and Chairman of the Board, Mr Ariff Ali, announced the decision after reflecting on the latest international and domestic economic indicators.
On the global front, the International Monetary Fund in its October 2021 World Economic Outlook, has slightly downgraded the global growth outlook for 2021 to 5.9 percent, while the projection for 2022 remains unchanged at 4.9 percent. The revised forecast largely reflects global supply chain disruptions that have created challenging near-term prospects for advanced economies while worsening pandemic dynamics have considerably affected the economic outlook of low-income developing countries.
Domestic economic activity is gradually improving from the setback caused by the outbreak of the Delta variant, as an increasing national vaccination rate has allowed for the further easing of COVID-19 related restrictions. While the economy is still expected to record a small contraction in 2021, several partial indicators recorded monthly improvements in September following the COVID-19 induced slump that began from the second quarter of 2020. This included monthly growth in the production of electricity, cement, mineral water, gold, sawn timber, wood chips and mahogany. Consumption activity has also picked up, evident from higher net VAT collections and increased second-hand car sales. The RBF’s Job Advertisement Survey also registered a monthly uptick in the number of newspaper vacancies in September, suggesting that labour market and economic conditions are slowly improving, albeit from a lower base.
While credit conditions remain soft, the injection of approximately $300 million through the various RBF Facilities, including approximately $93.3 million in loans to 4,185 businesses under the Government Guarantee and Interest Subsidy Scheme, where borrowers do not pay interest or fees for the first two years, have also boosted economic recovery.
In the months ahead, economic prospects are relatively favourable as the appetite to travel to Fiji is visible from the growing airline and hotel bookings. A bounce in consumption spending is also expected, led by the approaching Diwali and Christmas festivities and the second pay-out from the Government’s unemployment assistance scheme. Furthermore, the anticipated strong inflow of personal remittances, which grew annually by 17.4 percent to $595.6 million in September, will continue to support spending for many households moving ahead. However, uncertainty about the pace of the awaited tourism recovery, resurgence in infection rates, natural disasters and thedomestic spill-over of mounting global inflationary pressures remain key concerns to the economic outlook.
For the financial sector, ample liquidity in the banking system ($1,554.7 million at 27/10), along with the Reserve Bank’s quantitative easing measures, have helped keep borrowing rates low and provided support to the economy. Lending rates and the cost of funds have generally fallen over the year, with financial institutions continuing to provide moratorium to selected customers during this difficult time. The non-performing loans ratio remains elevated, although buffered by adequate provisioning and a well-capitalised banking system.
On the dual monetary policy objectives, while domestic inflationary pressures remain contained, for now, the surge in global commodity prices amid persistent supply shortages has filtered through to the prices of some goods and increased the contribution of imported inflation to overall headline inflation. Accounting for elevated external price pressures, especially for energy and food, the RBF forecasts headline inflation to reach 2.0 percent by the end of 2021 from -2.6 percent at the end of 2020. Foreign reserves remain at comfortable levels at $3,099.7 million (28/10), sufficient to cover 10.7 months of retained imports and are projected to remain adequate in the short to medium term.
Governor Ali affirmed that the RBF will continue to support the economic recovery through its conduct of monetary policy, remain vigilant in assessing evolving domestic and international economic scenarios, and align monetary policy as and when required.