Friday, April 29, 2016

Fiji holds rate, inflation low despite shock from cyclone

     Fiji's central bank left its Overnight Policy Rate (OPR) at 0.5 percent, unchanged since October 2011, saying its twin objectives remain intact and inflation remains low despite the supply-side shock from Tropical Cyclone Winston and recent flooding.
    The Reserve Bank of Fiji (RBF) noted that inflation in March eased to 0.8 percent from 1.2 percent in February and the forecast for end-year is around 2.0 percent, which also reflects lower fuel prices stemming from lower crude oil prices.
    Foreign reserves amounted to US$1.984 billion as of April 28, slightly below $2.006 billion on March 29, but sufficient to cover 5.6 months of imports.
    Barry Whiteside, central bank governor and board chairman, said in a statement Fiji's economy was still on track to achieve its seventh year of expansion, although at a slower pace than earlier expected due to the negative impact of natural disasters and weak demand from trading partners.
    In January the RBF forecast economic growth this year of 3.5 percent, down from 4.0 percent in 2015 and 5.3 percent in 2014 and Whiteside has earlier said Cyclone Winston was expected to lower this growth forecast, notwithstanding the impetus from recovery activities.
    Fiji was struck by Tropical Cyclone Winston on the night of Feb. 20, with wind gusts up to 325 kph (202 mph) that killed 42 people and left more than 62,000 people homeless. The government has estimated damage of 1 billion Fijian dollars, or US$460 million.
     With winds of 296 kph (184 mph), Cyclone Winston was the worst cyclone ever recorded in the Southern Hemisphere, smashing the previous record of 178 mph set by Cyclone Zoe which hit the Solomon Islands in 2002. If Winston had occurred in the Atlantic, it would have been categorized as a Category 5 hurricane.

    The Reserve Bank of Fiji issued the following statement:

"At its monthly meeting on 28 April 2016, the Reserve Bank of Fiji Board agreed to maintain the Overnight Policy Rate at 0.5 percent.

In announcing the decision, the Governor and Chairman of the Board, Mr Barry Whiteside highlighted that “the ongoing weakness in global demand remains a downside risk for Fiji’s exports, tourism and remittance sectors. Nevertheless, windfall gains from the current low global commodity prices, particularly for oil augurs well for many of our key sectors. The Fiji economy is still on track to achieve its seventh year of growth this year, albeit at a slower pace than earlier expected due to the negative impacts of the recent natural disasters and weak trading partner demand.’’

Latest indicators suggest mixed sectoral performances. While better-than-expected performances were recorded by the tourism and mining sectors up to March 2016, declines were noted for the timber and fish industries for the March quarter and the first two months, respectively. Nevertheless, disaster related assistance including member withdrawals from the Fiji National Provident Fund and various facilities offered by financial institutions, coupled with rebuilding and rehabilitation efforts are expected to stimulate consumption and construction activity in the economy. Furthermore, the current situation of favourable monetary conditions and record low interest rates, are expected to provide further impetus for investment and growth.

Amidst these developments, the twin objectives of the Reserve Bank remain intact. Despite the supply-side shock from Tropical Cyclone Winston and the recent flooding, inflation has remained low, falling to 0.8 percent in March from 1.2 percent in February. Year-end inflation is forecast at around 2.0 percent, which takes into account the subdued imported inflation emanating from lower crude oil prices, and the subsequent reductions in domestic fuel prices. Foreign reserves are currently (28 April) $1,984.0 million, sufficient to cover 5.6 months of retained imports of goods and non-factor services.

Mr Whiteside reiterated that “given the weak global outlook and the adverse effects of the recent spate of natural disasters, supporting economic recovery is vital, while at the same time safeguarding the Bank’s twin objectives. In this regard, the Bank will continue to closely monitor economic developments to identify any potential risks to our monetary policy objectives that would warrant a change in monetary policy.”


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