The Reserve Bank of Fiji in its Quarterly Review for March 2016 stated that monetary conditions remain largely favorable in the year to March reflecting historically low interest rates and sufficient liquidity in the banking system.

Commercial banks’ weighted average outstanding and new lending rates and existing time and savings deposits rates all fell in the March quarter compared to December 2015.

Liquidity in the banking system rose over the quarter by $65.4 million from $488.4 million.  The liquidity in the banking system is measured by commercial banks’ demand deposits.

The trade data based on Overseas Exchange Transactions (OET) revealed that cumulative to March, exports rose by an annual 25.0 per cent while imports declined by 11.7 per cent, leading to a narrowing trade deficit which is good for the economy.

Foreign reserves (RBF Holdings) at the end of March were $2,006.0 million, sufficient to cover 5.6 months of retained imports of goods and non-factor services.

Overnight Policy Rate (OPR) remained at 0.5 per cent in the March quarter, a decision made by RBF to support the economic recovery while maintaining its monetary policy objectives intact.

Production

The Macroeconomic Committee forecasted that cane output is expected to decline by 25.7 per cent to 1,371,000 tonnes in 2016 which will also result in the contraction of sugar production by 31.4 per cent to 152,333 tonnes.

Due to damages after TC Winston, the tonne of cane to tonne of sugar ratio is now anticipated to deteriorate to 9.0 from the 8.3 achieved in the 2015 crushing season (Graph 1).

Electricity consumption declined in the March quarter by 2.8 per cent due to restriction n higher electricity production after TC Winston which damaged the FEA infrastructure that led to power outages particularly in the Western Division.

Domestic reduced by -6.6 per cent, industrial by -1.9 per cent and commercial by -0.7 per cent.

Performance in the timber industry remained weak during the first quarter as indicated by the data from the Tropik Wood Industries Ltd (TWIL).

Total log production declined by 52.4 per cent to 42,714 tonnes, leading to lower woodchip output (52.6 per cent to 36,051 tonnes).

This was underpinned by the temporary closure of the TWIL’s Drasa sawmill for maintenance and upgrade works.

Similarly, mahogany logs harvested by the Fiji Hardwood Corporation Ltd cumulative to March fell by 0.6 per cent to 9,843 cubic meters largely due to accessibility issues.

Cumulative to March, the Vatukoula Gold Mines Ltd produced 10,326 ounces of gold, an annual increase of 7.9 per cent and higher production was attributed to full operation of the mine.

Additionally, the rise in world market gold prices to US$1,237.0 per ounce on 31 March from $1,234.9 on February 29 augured well for the industry in terms of higher exports receipts.

Partial indicators for consumer spending which include net VAT collections, commercial banks’ new lending for consumption purposes, etc. were robust in the first quarter.

Net VAT collections fell by a yearly 17.5 per cent to $164.7 million and this was due to the reduction in VAT rate from 15.0 per cent to 9.0 per cent.

In contrast, second hand and new vehicle registrations both increased in the first three months by 3.5 per cent and 15.2 per cent respectively.

Commercial banks’ new lending for consumption purposes grew by 5.2 per cent in the year to March led by higher loans to the wholesale, retail and hotels and restaurant sector (0.6 per cent) and private individuals (18.1%).

The FNPF pay-out of $136.0 million as at 31 March and higher annual personal income remittances in the first quarter (2.0 per cent), led to more consumer spending.

Further rehabilitation/reconstruction activities after TC Winston and as the peak season for tourism is approaching will further encourage consumption.

This is supported by the sentiments or retailers in the December Retail Sales Survey whereby retail sales are anticipated to increase by 7.7 per cent this year.

Survey and Investment

The Reserve Bank’s December 2015 Business Expectations Survey indicated an increase in investment in plant and machinery and buildings.

Domestic cement sales (indicator for construction activity) increased by 10.6 per cent cumulative to March.

Commercial banks’ new loans for investment purposes declined by 30.2 per cent over the same period, due to lower new lending to the real estate (-45.5 per cent) and building and construction sector (-12.1 per cent).

Construction projects are expected to increase given that higher number of building permits (5.8%, 437 permits worth $67.6m) – a forward indicator for construction activity – were issued in the December quarter of 2015.

In contrast, the number and value of completion certificates in 2015 contracted by 3.5 per cent to 527 and 5.4 per cent to $103.2 million respectively.

Total value of work put-in-place by the construction sector rose by 12.4 per cent.

The labor market remains favorable in the March quarter of 2016 with the number of jobs advertised increased annually by 3.6 per cent to 2,776 vacancies.

High recruitment intentions were largely underpinned by the construction; wholesale & retail trade and restaurants and hotels and electricity and water sectors.

Outlook for Fiji’s labor market continues to be positive, consistent with the current positive domestic economic prospects.

Inflation slowed to 0.8 per cent in March 2016 when compared to December 2015 which stood at 1.5 per cent.

Lower prices in the following contributed positively to the March inflation outcome – alcoholic beverages; tobacco and narcotics; education; food and non-alcoholic beverages.

Lower prices was also recorded for housing, water, electricity, gas and other fuels and transport categories have remained a drag on overall inflation.

The year-end inflation is forecasted to be around 2.0 per cent owing to weaker global commodity prices, especially crude oil and the recent reductions in domestic fuel prices by the Fiji Commerce Commission.

Due to shortage in supply of agricultural items following TC Winston and the recent flooding in the Western Division, prices are expected to increase in the months ahead.

Further reductions in domestic fuel prices announced by the Fiji Commerce Commission and low trading partner inflation and associated weak global commodity prices are largely anticipated to ease inflationary pressures.

Inflation is now forecast to be around 2.0 per cent by year – end.

nThis is an informative publication, sponsored by The Fiji Sun, Fiji Bureau of Statistics and HFC Bank. All views expressed or implied are purely of the Treasurer at the HFC Bank, Peter Fuata.