12.4 % growth projected for 2022: RBF

At its June meeting, the Reserve Bank of Fiji (RBF) Board kept the Overnight Policy Rate unchanged at 0.25 percent.

The Governor and Chairman of the Board, Ariff Ali, highlighted that: “The strong recovery in the tourism industry currently underway has boosted aggregate demand and positively impacted the broader economy with growth now projected at 12.4 percent for 2022.

Partial indicators of consumption and investment spending are noting annual gains along with higher public spending.

RBF survey and industry data also point to the continuing recovery in the labour market, evident by increased jobs advertised and a steady rise in recruitment in major sectors.”

Mr Ali added that “the latest outturn in the financial sector also supports the recovery, as higher lending by commercial banks and other financial institutions drove the 2.6 percent growth in private sector credit in the year to May.

High liquidity in the banking system ($2.4b as of 29/06) has also pushed the banks’ weighted average lending rate to historic lows.

Overall the financial system remains stable with adequate capital and provisioning.”

In the external sector, the trade deficit widened by 59.6 percent in the first quarter as imports growth outpaced exports performance. Against the backdrop of high energy and food prices, the trade deficit will likely deteriorate further this year due to higher imports.

On the monetary policy objectives, Governor reiterated that the inflation dynamics continue to be influenced by higher imported inflation which contributed most to the annual headline inflation of 5.0 percent in May. Despite the recent uptick in imports, foreign reserves remain adequate at over $3.4 billion (30/06), sufficient to cover 7.9 months of retained imports.

Nonetheless, Mr Ali cautioned that persistently high inflation across the globe has raised the risks of stagflation in the world economy and may potentially dampen the domestic economic recovery to some extent. Although the outlook for inflation remains elevated, foreign reserves will remain at comfortable levels over the near term. Therefore, monetary policy settings should remain accommodative to ensure the current economic recovery gets a firmer footing.