Thursday, June 29, 2017

Fiji maintains rate as inflation decelerates further

     Fiji's central bank left its Overnight Policy Rate (OPR) at 0.50 percent, unchanged since October 2011, noting that inflation in May fell to the lowest level since March 2016 and barring any changes in the national budget, the year-end inflation forecast for 2017 remains at 3.0 percent.
     Fiji's inflation rate rose sharply following Tropical Cyclone Winston in February 2016, which hit the supply of fresh fruit and vegetables and led to a tripling of the price of the national drink of kava.
     But after rising to 6.8 percent by January this year, Fiji's headline inflation rate has decelerated as food prices have come down and fell to 2.5 percent in May from 4.1 percent in April.
     Ariff Ali, acting governor of the Reserve Bank of Fiji (RBF), said foreign reserves stood at US$2.278 billion as of June 28, up from $2.240 billion on May 25, and sufficient to cover 5.7 months of imports and are expected to remain comfortable until the end of the year.
     "The dual monetary policy objectives remain intact with no risk in the immediate term," said Ali, who took over from Barry Whiteside when his term ended in late May.
    Whiteside had been governor of RBF since 2011 and Ali was appointed by the prime minister for three months or until a permanent appointment as governor has been made.
     While the International Monetary Fund sets a benchmark of 3 months of reserves to cover imports, Fiji likes to have a buffer above this benchmark as the island is prone to natural disasters, which can affect its exports and tourism, as well as external shocks that can increase its import bill and thus reserves.
    In addition to it its own reserves, the central bank has allowed some non-bank financial institutions to invest offshore and at the end of July 2016 those reserves amounted to more than $500 million, according to Ali's presentation on the bank's January-July 2016 report on June 8 this year.
     The asset portfolio of the entire Fijian financial system amounted to just over $16 billion as of July 2016, almost twice the size of the island's Gross Domestic Product, with banks accounting for 53 percent of those assets, the Fiji National Provident Fund (FNPF) for 31 percent and the insurance industry for 9 percent.
      FNPF provides retirement services in Fiji and is one of the country's largest property owners and a major investor in several other firms, such as Vodafone Fiji, Amalgamated Telecom Holdings and Home Finance Company Bank.
     After slowing to estimated growth of 2.0 percent last year due to the damage caused by Tropical Cyclone Winston - the worst ever cyclone in the Southern Hemisphere - Ali said Fiji's economy is on track to expand by 3.8 percent this year due to higher demand coupled by strong performance in the tourism and electricity sectors, expected increases in manufacturing, construction, and cane and sugar output.
     Business confidence remains strong, Ali said, adding private sector credit rose by 14.1 percent in the year to May.
     In May the RBF revised upward its 2017 growth projection to 3.8 percent from 3.6 percent and maintained its 2018 growth forecast of 3.0 percent. For 2019 the economy is forecast to grow 2.9 percent.

     The Reserve Bank of Fiji issued the following statement:

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

In conveying the decision, the Acting Governor and Chairman of the Board, Mr Ariff Ali stated that, “the dual monetary policy objectives remain intact with no risk in the immediate term.”
On price stability, the annual inflation rate fell to 2.5 percent in May 2017, the lowest rate since March 2016. The lower inflation outturn was underpinned by declines in the food & non-alcoholic beverages category and also reflected the fall in prices for fresh fruit and vegetables from the high levels prevalent immediately after TC Winston. Barring any major changes in the National Budget, the year-end inflation forecast for 2017 remains at 3.0 percent.

With regards to external stability, as at 28 June, foreign reserves stood at $2,279.7 million (sufficient to cover 5.7 months of retained imports of goods and non-factor services) and are expected to remain comfortable until the end of the year.

Against this background, Mr Ali stated that, “the Fijian economy is on target to achieve a broad- based growth forecast of 3.8 percent this year, on account of higher aggregate demand coupled with strong performances so far in the tourism and electricity sectors as well as anticipated increases in manufacturing, construction and cane and sugar output. In addition, business confidence remains strong as indicated by the acceleration in private sector credit which rose by 14.1 percent in the year to May 2017.”

While risks to the world economy remains, recent assessment confirms firm global growth and positive performances expected for most of Fiji’s trading partner economies in 2017. Consumer and business confidence remain strong, contributing to the pick-up in global trade so far this year.

The Acting Governor concluded that the Reserve Bank will continue to closely monitor international and domestic developments, in particular the impact of the 2017/2018 National Budget which will be announced on 29 June, and align monetary policy accordingly."


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