The Reserve Bank of Fiji also said its dual monetary policy objectives remain intact, with inflation easing to 4.1 percent in April from 5.6 percent in March, and foreign reserves of $2.240 billion as of May 25, up from $1.991 billion as of March 30, sufficient to cover 5.6 months of imports.
Fiji's economy was hit hard in February 2016 by Tropical Cyclone Winston, the worst ever cyclone in the Southern Hemisphere, resulting in higher inflation from a shortage of some food items, including the national drink of yaqona.
Inflation this year will continue to be affected by domestic supply shortages but price hikes in the wake of the cyclone are expected to taper off, with inflation expected to fall to 3.0 percent by the end of this year as supply normalizes for most agricultural products, according to Barry Whiteside, central bank governor.
The outlook for Fiji's economy has improved this year due to the spill-over of last year's reconstruction from cyclone-related damages, especially the construction sector, and the wholesale and retail sector benefitting from increased sales of hardware and related building items.
Except for the sectors of fishery, forestry and mining, all other sectors are supported by buoyant consumption and improving investment activity. Manufacturing will be underpinned by an expected rebound in cane production, Whiteside said.
Last week the central bank revised upward its 2017 growth projection and maintained its 2018 growth forecast of 3.0 percent compared with 2016's estimated growth of 2.0 percent.
For 2019 the economy is forecast to grow 2.9 percent.
Fiji's 2017 current account deficit, excluding aircraft, is forecast around 5.4 percent of Gross Domestic Product but the capital and financial account balance is expected to show a bigger surplus than the 7.0 percent of GDP previously forecast due to higher inflows of foreign direct investment and the disbursement of a US$50 million loan from the Asian Development Bank for cyclone-related recovery work, the central bank said last week.
The Reserve Bank of Fiji issued the following statement:
"At its monthly meeting on 25 May, the Reserve Bank of Fiji Board agreed to maintain the Overnight Policy Rate at 0.5 percent.
In conveying the decision, the Governor and Chairman of the Board, Mr Barry Whiteside stated that, “domestically, real sector outcomes have been mixed to date, however, aggregate demand conditions remain positive, largely underpinned by buoyant consumption and improving investment activity.”
Mr Whiteside added that, “the domestic growth outlook has improved this year, largely from the spill-over of post Tropical Cyclone (TC) Winston related reconstruction activities from 2016, and better-than-expected sectoral performances so far this year. Economic activity continues to strengthen supported by conducive labour market and financial conditions.” With the exception of the fishing, forestry and mining sectors, a broad-based services-led growth of 3.8 percent is forecast for the Fijian economy in 2017, following an estimated 2.0 percent expansion last year.
On the external front, Mr Whiteside highlighted that the global economy is expected to gain momentum this year, led by growth in advanced economies while prospects for emerging and developing economies remain uneven. “Risks to the projections remain downward biased and include widening global imbalances and increased geopolitical tensions in the Middle East, North Africa and Korean peninsula, which can have negative repercussions for Fiji’s trading partners and eventually our external sector. On the upside, a relatively low commodity price environment continues to augur well for our commodity-importing country, particularly as import demand picks up to meet the ongoing recovery needs.”
The dual monetary policy objectives of the Bank remain intact. Inflation fell to 4.1 percent in April 2017 from 5.6 percent in March, after remaining above the 5.0 percent mark in the first quarter of this year. Inflationary pressures in 2017 continue to be dominated by domestic factors, mainly supply shortages of certain market items (particularly yaqona) which have kept prices elevated following TC Winston. However, annual inflation is expected to fall to 3.0 percent by year-end as supply for most agricultural produce normalises. As of 25 May, foreign reserves were around $2,240.0 million, sufficient to cover 5.6 months of retained imports of goods and non-factor services.
The Governor concluded that the Reserve Bank will continue to closely monitor developments and risks to the global and domestic outlook and align monetary policy as warranted."
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