2.0 Monetary Policy Discussions
2.1 Monetary Policy Issues
The monetary policy objectives of low inflation and adequate level of foreign reserves were met in 2006. Year end inflation was 3.1 percent and foreign reserves were $880 million, sufficient to cover 3.7 months of imports of goods. Fiji’s economic growth is estimated at 3.4 percent in 2006. Finance, insurance, real estate & business services; community, social & personal services and building & construction were the major sectors estimated to have driven growth last year.
This year, the economy is projected to fall by 2.5 percent, largely as a result of the reduction in tourist arrivals, a contraction in the building & construction sector, anticipated lower government operational expenditure and the cessation of gold production due to the closure of the Emperor Gold Mining Company Limited (EGM).
Recent information on domestic activity suggests that economic conditions have weakened over the past few months in line with the economic contraction projected for the whole year. Latest business expectation surveys indicate below average trading conditions for the economy in the short-term, when compared to the sentiments expressed in earlier surveys. Consumer demand is also relatively lower as suggested by partial indicators. For instance, net Value Added Tax (VAT) collections, cumulative to April 2007 fell, when compared with the corresponding period in 2006. The weak consumer demand is also underpinned by lower employment prospects and the relatively subdued income growth expected for the year as suggested by results of the latest Fiji Employers Federation Survey conducted by the Bank.