Lending Rates Could Drop: RBF

Banks could start reducing lending rates, the Reserve Bank of Fiji said at the weekend. The central bank’s Governor Ariff Ali made the comment at the post budget discussions in Suva, which were hosted by the Fiji Chamber of Commerce and Industry.

With liquidity rates soaring to over $100 million in recent months, there should be no upward pressure on lending rates, he said.

“Deposit rates will fall, which becomes an input in the lending rate; I would think that that would start reducing the lending rate as well,” Mr Ali.

“Given that banks will have large funds to lend out, they can’t be keeping it because we don’t give them any deposits on that.

“Sooner or later, we will see some pick up in commercial lending rate to support the economy, given the incentives in the 2020-2021 national budget.

“No country in the world has reduced expenditure under the COVID-19 crisis.

“All countries in the world have gone and spent, borrowing most.”

Restructured loans

Fiji’s financial institutions collectively have restructured loans to the tune of $3.4 billion which represents 50 per cent of the overall portfolio, Mr Ali said.

Of that, $900million were the small medium enterprises loans with clients numbering $4000, he said.

“Prices on a number of a lot of things will fall because import prices will fall.

“When you go to McDonald’s and Burger King by August 1, their prices would have fallen because of reduction in the Environment and Climate Adaptation Levy (ECAL) and Service Turnover Tax (STT), and also because of the impact of imports.

“From a central banking perspective, that is comforting that the budget will reduce prices.”

Mr Ali said the 2020-2021 budget brought with it lower prices which meant inflation will be lower in the next 12 months, before it increases.

Over the past 10 months, inflation has been in the negative because of the economy being slow.

But the two driving factors of the deflation rate in the last 10 months were yaqona prices and oil prices, he said.

Yaqona and oil

Yaqona made up about two per cent of the consumer price basket, Mr Ali said.

“Now yaqona prices have fallen by 50 per cent which has contributed to the deflation rate. Prices on a number of a lot of things will fall because import prices will fall. “When you go to McDonald’s and Burger King by August 1, their prices would have fallen because of reduction in Environment and Climate Adaptation Levy (ECAL) and Service Turnover Tax (STT), and also because of the fries and those imported items.

“From a central banking perspective, that is comforting that the budget will reduce prices.