Press Release No 22 – RBF Maintains Accommodative Monetary Policy Stance
Press Release No. : 22/2020
Date : 24 September 2020
The Reserve Bank of Fiji (RBF) Board agreed to maintain the Overnight Policy Rate at 0.25 percent at its monthly meeting on 24 September.
The Governor and Chairman of the Board, Mr Ariff Ali highlighted that “the latest economic data indicated some pickup in global economic activity in the third quarter after severe lockdowns ended in most countries. However, overall economic performance is well below pre-COVID-19 levels, and the reimposition of restrictions in some countries along with the continued closure of international borders have heightened uncertainties on the timing and pace of economic recovery. Nonetheless, the progress in the development of various vaccines provides some hope on both the health and economic fronts.”
Domestically, Governor Ali noted that while aggregate demand remains sluggish compared to a year ago, certain indicators for consumption and sectoral performance recorded improvements in August. On the downside though, the results of the RBF June Retail Sales Survey point to a significant decline in retail sales this year. Similarly, general business conditions are expected to deteriorate in the short term but to improve slightly in the medium term. The Chairman added that tax incentives and concessions provided to businesses along with the financial assistance rendered to households in the 2020-21 National Budget should help stabilise and spur domestic demand over the coming months.
Excess liquidity in the banking system reached a historical high of $1.1 billion in August, driven by the increase in foreign reserves which in turn was underpinned by Government external borrowing. Governor Ali mentioned that liquidity in the banking system is envisaged to remain ample in the foreseeable future and continues to place downward pressure on market interest rates, which generally fell in August. However, domestic credit contracted in the review month, driven by the decline in lending to the private sector. The outcome is reflective of a general tightening in lending standards amid the subdued economic environment.
Annual inflation slid further to -3.0 percent in August from -1.6 percent in July, primarily influenced by lower prices of alcoholic beverages, yaqona, food and fuel. Foreign reserves are adequate at $2,338.3 million (24/09), sufficient to cover 8.5 months of retained imports of goods and services and anticipated to remain at comfortable levels in the medium term.
The Governor concluded that the outlook for the Reserve Bank’s twin monetary objectives of low inflation and adequate foreign reserves is intact, although the extended border closure remains a key downside risk for domestic economic recovery going forward. The Reserve Bank will continue to monitor economic developments closely and align monetary policy where appropriate.