What is Monetary and Fiscal Policy?
Monetary policy and fiscal policy are the most commonly used tools to influence a country’s economic activity. Different authorities usually implement these two separate policies, using distinct tools and instruments.
On the one hand, in Fiji, the formulation of monetary policy is primarily the responsibility of the Reserve Bank of Fiji (RBF) with its key objectives of ensuring stable inflation and maintaining an adequate level of foreign reserves that are important for economic growth. On the other hand, fiscal policy is implemented by the Government to achieve sustained economic growth, stimulate investment, keep Government debt at sustainable levels and ensure efficient use of its resources, amongst other things.
The success of both the RBF and the Government in meeting these major and often interdependent objectives hinges on the reaction of aggregate demand, or more generally economic activity, to these policies. In order for both monetary and fiscal policy objectives to be achieved, the RBF and the Government work together and align or coordinate their policies –in the best possible way.