Press Release No. : 16/2021
Date : 26 August 2021
The Reserve Bank of Fiji (RBF) Board, at its monthly meeting on 26 August 2021, assessed the monetary policy objectives, inflation and foreign reserves, to be within comfortable benchmarks. In light of this, the Board decided to keep the Overnight Policy Rate at 0.25 percent, indicating its continued commitment to support Fiji’s recovery by maintaining highly accommodative monetary conditions.
The Governor and Chairman of the Board, Mr Ariff Ali, highlighted that while the global economic outlook continues to improve, led by the advanced economies, prospects for emerging market and developing economies have been marred by recent outbreaks of the COVID-19 delta variant, diverging recovery paths further.
Domestically, the pandemic continues to weigh heavily on Fiji’s social and economic conditions. With COVID-19-related restrictions still in place, albeit eased somewhat, overall economic activity remains largely subdued with the exception of the mining and forestry sectors, which have gained from recovery in global demand. Consumption and investment activity remained weak but is expected to be bolstered to some extent by the Government’s assistance programs announced in the 2021-2022 National Budget. One of which is the $200 million unemployment income support programme, where Government has to date (23/8), made an $83.3 million pay-out to 232,893 eligible Fijians.
In line with the RBF’s stance, Governor Ali explained that banking system liquidity remains high and stands at around $1,603.0 million (25/08). While current accommodative financial conditions have generally led to lower lending and deposit rates, credit activity remains suppressed given the weak economy and accompanying ‘wait and see’ approach to investment decisions. Nonetheless, risks in the banking system, particularly from rising non-performing loans, have been mitigated by adequate capitalisation and provisioning for impaired loans by banks.
On the monetary policy objectives, headline inflation slipped back into the negative trajectory in July (-0.4%) led by lower prices in the alcoholic beverages, tobacco & narcotics category. As indicated in the July press release, the year-end inflation for 2021 is now forecast to be slightly higher at 2.0 percent and pick up to 2.5 percent and 3.5 percent, respectively, by the end of 2022 and 2023. The higher inflation projection largely accounts for rising global commodity prices and supply chain disruptions. Foreign reserves have reached a new record, owing to the recent inflow of an additional Special Drawing Rights (SDRs) allocation by the International Monetary Fund of around $283.7 million. As at 26 August, foreign reserves are at $3,327.8 million (26/08), sufficient to cover 11.5 months of retained imports.
Governor Ali concluded that while risks to the outlook remain tilted to the downside, the steady progress in vaccination coupled with the planned progressive easing of restrictions will support economic activity moving forward. The RBF will continue its close monitoring of local and external developments and align monetary policy accordingly.