The Reserve Bank of Fiji (RBF), the island nation’s central bank, said Thursday that its overnight policy rate (OPR) remained unchanged at 0.25 percent due to the current weak global economic environment.
According to a statement issued by the RBF on Thursday, Ariff Ali, governor and chairman of the RBF Board, said that the global economy still remains in a precarious situation. And moving ahead, the prospects of a second wave of infections and containment measures could further prolong this current weak global economic environment.
The halt in global travel has brought Fiji’s important tourism sector to a standstill and negatively impacted the broader economy, he said, adding that sectoral performances, consumption spending, and investment activity have contracted considerably relative to a year ago.
He cautioned that the island nation’s economy is operating well below potential and the ongoing weakness in the labor market owing to job losses and reduced hours will continue to be a drag on economic activity.
The governor pointed out that while banks are well capitalized and the overall financial system remains sound, the recent build-up in non-performing loans could impact financial stability moving ahead.
Targeted changes to the taxation regime, increased budgetary allocations to critical social and economic sectors along with the provision of unemployment benefits reflected in the 2020-21 National Budget which was passed in the parliament on Thursday, are expected to positively nudge consumer and business confidence and stimulate domestic demand over the next few months.
More importantly, the incentives in the Budget should help support the tourism industry by enhancing its competitiveness and enable it to drive the economic recovery when travel restrictions are lifted.
The nation’s annual inflation came in negative for the ninth consecutive month and reached a historic low of -3.5 percent in June this year. The year-end inflation is likely to be lower than the current 1.0 percent forecast, factoring in the year-to-date outturn, July fuel price review, and the impact of the 2020-21 National Budget.
Currently, foreign reserves in Fiji stands at 2.1 billion Fijian dollars (about 988 million United States dollars), sufficient to cover 7.7 months of retained imports of goods and services, and are anticipated to remain adequate in the medium term.
In light of the stable foreign reserves and inflation outlook, the Bank will continue to maintain its accommodative stance and closely monitor international and domestic economic developments and align monetary policy accordingly, Ali said.
In March this year, the RBF reduced its OPR to 0.25 percent from 0.50 percent following the bank’s assessment of the global effects of the recent coronavirus outbreak and its implications on Fiji’s GDP growth and the RBF’s twin monetary policy objectives.
The Fijian economy is expected to contract by 21.7 percent in 2020 mainly due to the poor tourism activity and its knock-on effects to the rest of the economy.
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