Press Release No: 03/2022
The Reserve Bank of Fiji (RBF) Board kept the Overnight Policy Rate unchanged at 0.25 percent following its monthly meeting on 24 February.
The Governor and Chairman of the Board, Mr. Ariff Ali, stated that “globally, the occurrence of new COVID-19 variants and caseloads continue to provide friction to the growth momentum and recovery.” The recent downgrade to global growth for 2022 by the International Monetary Fund reflected the impact of the Omicron variant, reduced prospects of additional fiscal stimulus, an earlier-than-anticipated withdrawal of monetary accommodation by some countries, coupled with the pandemic-induced supply chain disruptions. While risks to the global growth outlook remain tilted to the downside in the form of higher commodity prices, persistent supply chain disruptions, heightened geopolitical tensions, vaccine divide and rising inflationary pressures, economic growth in Fiji’s key tourism source markets remains intact.
Mr. Ali revealed that domestic activity indicators in January were mainly favourable. Following the opening of borders in December 2021, Fiji has since received 39,728 visitors in the two months, compared to almost no tourists in the preceding 18 months. Electricity production noted an annual growth while mineral water production grew strongly on the back of robust external demand. In contrast, timber and gold output contracted due to planned mill closure and adverse weather conditions. Over the same period, consumption activity picked up as indicated by a growth in Net Value Added Tax collections, commercial banks’ new consumption lending and new vehicle sales – in line with eased COVID-19 restrictions, reopened borders and the recommencement of many businesses. In tandem, labour market conditions have also improved, shown by a growth in the number of jobs advertised and Pay As You Earn tax collections. On the other hand, both cement production and sales declined in January, as uncertainty around the economic recovery continued to weigh on investor activity.
On the financial sector, Mr. Ali highlighted that higher foreign reserves inflows, quantitative easing and the drawdown of the RBF’s lending facilities have underpinned the increase in money supply in January. Consequently, banking system liquidity stood at $2,074.0 million (23/02), placing continued downward pressure on interest rates. Private sector credit, which noted a modest growth for the second month in January, was driven by the increase in lending to private sector business entities.
The outlook for 2022 remains positive, as indicated by sentiments from the December 2021 Business Expectations and Retail Sales Surveys (RSS). Based on the results of the RSS, retail activity is
expected to rebound in 2022 to double digit growth after two years of dismal sales, underpinned by easing of restrictions and more inbound tourists, along with businesses adapting to new ways of doing business. In addition, a net 70 percent of businesses have a favourable outlook for the next twelve months, twice the ratio when compared with a year ago. Similarly, approximately half of the respondents indicated that they will be hiring additional staff this year.
The Governor reiterated that despite the initial slower than expected pick-up, tourism will remain the main driver of the economic rebound this year with forward bookings indicating strong activity from April onwards. Nonetheless, the resurgence of COVID-19 cases and emergence of new variants, natural disasters, lower than expected visitor arrivals and limited fiscal space remain significant downside risks to this outlook. Governor Ali stated that, “the monetary policy objectives of the Bank remain intact for the near to medium term despite concerns around inflation.” Foreign reserves currently stand at $3,085.5 million (24/02), sufficient to cover 8.5 months of retained imports of goods and services. The rebound in tourism activity and Government external loan drawdowns are anticipated to keep foreign reserves at adequate levels into the medium term. Annual inflation was 2.7 percent in January 2022, largely led by high imported inflation amidst rising global commodity prices, supply chain disruptions and the prompt pick-up in foreign demand. Given these developments and the recent domestic floods, the year-end inflation forecast for 2022 has been revised up to 4.5 percent. As global demand and supply mismatches normalise and commodity prices stabilise, inflationary pressures are expected to subside. Thus, year-end inflation is forecast to moderate to 3.0 percent and 2.6 percent in 2023 and 2024, respectively.
In conclusion, the Governor stated that the Bank will remain vigilant in its macroeconomic assessments given the evolving global and domestic conditions and emerging risks, aligning monetary
policy, as and when required.