In a recent meeting held on July 12, 2023, the Reserve Bank of Fiji (RBF) Board announced its decision to keep the Overnight Policy Rate steady at 0.25 percent. Mr Ali, Governor and Chairman of the Board, emphasized the positive impact of the tourism-led economic recovery and the newly announced national budget for FY2023-24, which is expected to provide additional stimulus and support economic activity in the future.
The Governor highlighted the ongoing recovery in the tourism sector, along with improvements in labor demand, income growth, personal remittances, and new consumption loans. These factors have contributed to steady growth in consumer spending throughout the year. However, the natural resource sectors, including forestry, mining, and mineral water, have experienced annual contractions due to industry-specific supply-side challenges and reduced demand.
Regarding the financial sector, the Governor noted a continuous expansion in private sector credit activity, with a 6.5 percent increase in May. The ample liquidity in the banking system, amounting to $2.5 billion as of July 12, has kept lending rates at historically low levels. Overall, the financial system remains stable, with sufficient capital and provisioning.
Addressing the RBF’s twin monetary policy objectives, Mr Ali stated that headline inflation has been on a declining trend, reaching 0.8 percent in May compared to 1.4 percent in April. This decline was primarily attributed to lower fuel and kava prices. However, with the tax increases announced in the FY2023-24 national budget, inflation is expected to rise from August onwards and reach 4.7 percent by the end of the year before subsiding to 2.5 percent by the end of 2024.
The Governor reassured that foreign reserves remain at a comfortable level, amounting to $3.6 billion as of July 12. This is sufficient to cover 6.3 months of retained imports of goods and services, surpassing the benchmark of 4.0 months of import cover. The medium-term outlook for foreign reserves is positive.
Concluding the announcement, the Governor stated that the current monetary policy stance will be maintained as long as inflation and foreign reserves remain within the comfortable range. The RBF will closely monitor global and domestic economic developments and adjust monetary policy accordingly.
