Press Release No. : 02/2021
Date : 28 January 2021
The Reserve Bank of Fiji (RBF) Board at its monthly meeting on 28 January maintained the Overnight Policy Rate at 0.25 percent.
The Governor and Chairman of the Board, Mr Ariff Ali, mentioned that “the recovery trajectory for 2021 seems slightly better-than-expected with the commencement of the COVID-19 vaccination programmes in several countries around the world.” In its January World Economic Outlook (WEO), the International Monetary Fund projects world economic activity to grow by 5.5 percent in 2021 following an estimated 3.5 percent contraction in 2020. The improved outlook is underlined by vaccine availability, expectations of firmer economic activity during the year and additional stimulus packages in larger advanced economies.
On the domestic front, Governor Ali stated that “while most sectoral output together with consumption and investment activities registered double-digit contractions in 2020, the downturn was somewhat mitigated by the early containment of COVID-19 infections locally and provision of financial assistance to affected individuals and households.” The return of economic activity to prepandemic levels will be long and uncertain given the extended closure of international borders. However, the recent vaccine rollout announcements, both locally and in major tourism source markets of Australia and New Zealand, are pulses of positivity. Based on the vaccination outturn globally and the possible commencement of international travel later in the second half of the year, the Fijian economy is anticipated to register positive growth in 2021.
Financial conditions continue to be accommodative with reductions in market interest rates and high liquidity levels ($880.9 million as at 27 January). Nonetheless, private sector credit activity contracted by 3.0 percent in 2020 due to the banking sector’s low-risk appetite. At present, the financial system remains stable, bolstered by strong capital and liquidity positions of banks. However, vulnerabilities emanating from a prolonged economic downturn could heighten debt serviceability pressures and loan defaults in the near to medium term.
In terms of the monetary policy objectives, Governor Ali noted that the annual inflation rate was at -2.8 percent in 2020, compared with -0.9 percent recorded in 2019, driven mainly by reduced prices of fuel and alcoholic beverages. The 2020 year-end balance of payments position was stable, with foreign reserves holdings of $2,193 million at the end of December last year. The outturn was supported by the narrower trade deficit, higher personal remittances and external government financing. Foreign reserves are currently (28/01) around $2,184 million, sufficient to cover 6.7 months of retained imports and are expected to be comfortable in the medium-term.
The Governor reiterated that since the outlook for the Bank’s twin monetary policy objectives is intact, the Reserve Bank will continue its accommodative stance and closer monitoring of domestic and external developments and align policy where appropriate.