Press Release No. : 09/2022
Date : 26 May 2022
The Reserve Bank of Fiji (RBF) Board kept the Overnight Policy Rate unchanged at 0.25 percent after its monthly meeting on 26 May 2022.
The RBF Board Chair and Governor, Mr Ariff Ali, highlighted that “The global outlook remains highly uncertain with no signs of an end to the war in Ukraine and abrupt changes to trade policies having a disastrous flow-on effect on the rest of the world, including Fiji.” As the world bears the brunt of the Russian-Ukrainian war and sanctions on Russia, the lockdowns in China worsened supply constraints due to shipping backlogs adding to inflationary pressures. Although commodity prices fell temporarily over the month in April due to weak demand from China, it remains relatively high compared to a year ago. Mr Ali emphasised that “We are not out of the woods yet and urged all Fijians to be prepared for the spill-over effect of spontaneous trade policy changes such as the recent ban on wheat exports by India and supply-side issues that continue to put upward pressure on imported prices.”
On the domestic front, the economy continues to show signs of improvement, driven mainly by tourism-related sectors. Since the opening of Fiji’s border in December 2021, 118,812 tourists have arrived in Fiji, mainly from Australia. In April, 46,680 tourists visited Fiji, more than double the March numbers. The upcoming peak tourism season and the commencement of the cane crushing season will provide a further push to domestic activity in the second half of this year. Aggregate demand has improved, primarily supported by higher consumer spending and a slight increase in construction-led investment spending. The labour market has also improved as recruitment intentions rose in the year to April, particularly in the tourism-related sectors.
Furthermore, private sector lending has picked-up momentum growing by 2.3 percent in April and is supporting the economic recovery. The banks remain adequately flushed with liquidity to lend, keeping interest rates at historically low levels. Mr Ali reassured that “While the RBF has noted an increase in non-performing loans, the banking system remains sound on the back of adequate provisioning and favourable capital adequacy ratio.”
Regarding the external sector, cumulative to February, Fiji’s merchandise trade deficit widened (78.6%) as imports growth outpaced the growth in exports. Imports rose strongly by 49.2 percent in the first two months of this year, reflective of the annual high global commodity prices and businesses restocking inventory in anticipation of higher demand as the economy is poised to grow. On a positive note, cumulative to April, inward remittances grew by 10.1 percent to total $303.1 million and are expected to continue trending upwards throughout the year.
On the monetary policy objectives, it was highlighted that foreign reserves remain adequate totalling $3,018.0 million (26/05), enough to support 8.3 months of imports of goods and services. Foreign exchange holdings are expected to remain at comfortable levels in the near to medium term despite the recent increases in commodity-related import payments offset partly by the continuing rise in tourism receipts. Annual headline inflation was 4.7 percent in April on the back of rising food and fuel prices, a vastly different dynamic compared to a year ago when inflation was -2.4 percent. Mr Ali further stressed that current inflationary pressures are largely due to the supply-side driven surge in global commodity prices, which will persist in tandem with uncertainties on the geopolitical front.
Mr Ali concluded that with no immediate threats to our core monetary policy objectives, the Bank’s monetary policy stance remains focussed on supporting the domestic economic recovery. The RBF will continue to monitor international and domestic developments and align monetary policy accordingly.