Press Release No. : 13/2022
Date : 25 August 2022
The Reserve Bank of Fiji (RBF) Board kept the Overnight Policy Rate unchanged at 0.25 percent in its August meeting.
The Governor and Chairman of the Board, Mr Ariff Ali stated that “global economic conditions have worsened rapidly in recent months amid the continuation of the Russia-Ukraine war, other geo-political tensions escalating, the economic slowdown noted for major economies – the United States (US), Europe and China, and the aggressive tightening of monetary and financial conditions.” Following these developments, the International Monetary Fund downgraded its global growth forecast for 2022 and 2023 in its July World Economic Outlook release. Sluggish economic data for most countries highlight the increased risk of a global recession, particularly with the US already in a ‘technical recession’ and China noting a quarterly contraction in June. On a positive note, sunflower oil and grains exports from Ukraine have resumed, bringing fresh hopes of exports and food security. Commodity prices, although high, have started to decline following rate hikes by major central banks and anticipation of a potential global recession.
Despite the clouded global outlook, the Governor mentioned that Fiji’s economic recovery has gained momentum, primarily led by a strong rebound in tourism activity and generally positive sectoral performances. Cumulative to July, visitor arrivals totalled 284,167, representing 56.4 percent of arrivals in the same period in 2019, with July recording 78,638 visitors (81.6 % of July 2019). In July, average revenue per available room remained above the comparable period in 2019, with occupancy rates at similar levels.
In terms of sectoral performances, sugar, sawn timber, mineral water, electricity and mahogany production noted annual gains in the year to date. These outcomes, coupled with increased remittance inflows, have supported aggregate demand. Partial consumption indicators (net Value Added Tax collections, new consumption lending and total vehicle registrations) and investment (cement sales and building permits issued) indicate that aggregate demand has grown into the year. Labour market conditions continue to improve, as indicated by the high growth in Pay As You Earn tax collections and a sharp rise in job advertisements in July.
Mr Ali added that credit conditions remain favourable and conducive to growth. In July, private sector credit continued to grow, mainly led by lending to tourism and travel-related sectors. Furthermore, high banking system liquidity ($2.6b as at 24/08) has helped keep interest rates near historic lows. The accommodative financial conditions combined with the expansionary fiscal stance should support growth further in the near term.
In terms of the RBF’s twin monetary policy objectives, the Governor highlighted that foreign reserves remain comfortable at $3,571.7 million (25/08), sufficient to cover 8.3 months of retained imports and is expected to remain adequate in the near to medium term. In contrast, inflation which continues to be swayed by imported inflation, edged up to 5.2 percent in July, attributed mainly to higher prices for goods and services in the transport, housing and food & non-alcoholic beverages categories.
RBF Governor concluded that while the recovery of the Fiji economy is on track, it remains vulnerable to persistent unfavourable global developments. Therefore, despite the inflationary environment, overall policy will continue to be geared towards supporting economic recovery as any premature tightening could impede the recovery path. The RBF will continue to closely monitor international and domestic developments and align monetary policy accordingly.