Press Release No. : 04/2021
Date : 25 February 2021
The Reserve Bank of Fiji (RBF) Board maintained the Overnight Policy Rate (OPR) at 0.25 percent following its monthly meeting on 25 February. The Governor and Chairperson of the Board, Mr Ariff Ali, stated that “while the International Monetary Fund expects the global economy to rebound this year, the recovery will be uneven, as oil exporters and tourism-dependent economies face weaker prospects and will incur lasting economic scars from the COVID-19 pandemic. The substantial uncertainty on the economic outlook remains as the favourable news on vaccine development and efficacy is eclipsed by the continued surge in the virus, emergence of new variants and challenges in the immunisation rollout.”
On the domestic front, Mr Ali reiterated that “economic recovery remains contingent on the resumption of international travel at least with major markets such as Australia and New Zealand. The economy could contract further if borders do not open this year, however, a marginal economic recovery could eventuate if borders open towards the end of the year. In addition, economic recovery will also depend on the level of fiscal support provided by the Government in the 2021-22 national budget. On a positive note, the RBF’s December Business Expectations Survey shows that overall business confidence has improved slightly from six months ago, possibly reflecting the successful containment of the virus locally, businesses adjusting to the new norm and concrete steps towards immunisation across the globe. ”
Mr Ali added that “the financial sector is stable and banks have increased their provisioning allocation to account for potential loan defaults whilst extending the moratorium on a case-by-case basis. Liquidity in the banking system remains sufficient at $902.7 million (24/02) prompting the decline in banks’ cost of funds over the month. The prolonged crisis also means that unemployment benefits need to continue, for which the Government in collaboration with the Fiji National Provident Fund has paid out $223.2 million to affected members, of which $106.1 million was topped up by the Government.”
The Governor also reported that the twin objectives of monetary policy remain at comfortable levels. Annual inflation was -1.3 percent in January but is likely to increase over the coming months as prices of locally produced fruits and vegetables are projected to rise due to supply shortages owing to Tropical Cyclone Ana and the associated floods. Nonetheless, the increase is expected to be temporary and subside afterwards, resulting in the 2021 year-end inflation forecast being unchanged at 1.5 percent. Foreign reserves continue to be above adequate levels and are currently (25/02) at $2,195.9 million, sufficient to cover 6.8 months of retained imports of goods and services. The outlook for foreign reserves for the near to medium term is also above the benchmark of 4.0 months of retained imports.
Mr Ali concluded that the stable outlook for inflation and foreign reserves coupled with the subdued domestic economy warrants a continuation of the accommodative monetary policy stance. The Bank will continue to closely monitor developments and risks to the global and domestic economic outlook and align monetary policy accordingly.