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Monetary Policy In Our Trading Partner Countries

Monetary Policy In Our Trading Partner Countries
July 08
11:40 2017

This 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 Financial Markets Analyst at the HFC Bank, Shoran Devi.


On 29th June 2017, we heard and read about the National Budget that the Minister for Economy, Mr Aiyaz Sayed-Khaiyum presented in Parliament.  The national budget is the document that details a country’s fiscal policy relating to Governments expenditure, revenue and tax policies.

The other critical macroeconomic policy is monetary policy.

The responsibility of monetary policy rests with central banks also called Reserve Banks.

The principal role of central banks is to maintain price stability.  This means to keep inflation in control at low and stable rates so as to set the platform for sustainable economic growth, encourage investments and savings are not eroded.

For the Reserve bank of Fiji, it has added responsibility.

This includes ensuring that we have comfortable levels of foreign reserves to meet our import payment and debt repayment obligations.

In addition the Reserve Bank is also in charge of ensuring that our financial system is safe and sound to protect the depositors, policy holders and pensioners.

Tight or contractionary monetary policy stance means that the central bank would make borrowing expensive to slow down credit growth if any of the objectives are in danger.

The manner in which this is done is that the Reserve Bank would raise the interest rate at which it lends funds to the commercial banks.

This rate is called the Overnight Policy Rate (OPR).

A higher OPR means that it is expensive for banks to borrow from the central bank which intend will transfer to the borrower.

An expansionary monetary policy also known as easing monetary policy is often associated when the monetary policy objectives are under no immediate threat.

This means that inflation is under control and foreign reserves are comfortable.

Hence, central banks have the room to stimulate the economy by lowering the OPR.

The RBF has had an easier monetary policy stance for some time now with OPR at 0.50 percent.

Last week, the RBF Board approved to maintain the current stance as inflation has declined to 2.0 percent at the end of June and foreign reserves level are approximately $2.3 billion, sufficient to cover around 5.6 months of import.

Similarly, the Reserve Bank of Australia had its interest rate announcement during the week and it remained the same at 1.50%.

This was to allow for sustainable growth in the economy and achieving the inflation target over time.

The Australian economy is expected to strengthen gradually.

Likewise, the Reserve Bank of New Zealand’s Monetary Policy Committee met on the 21st of June 2017, where they kept their official cash rate unchanged at a record low of 1.75 percent.

This was partly in response to higher export prices.

Keeping the interest rates low would lead to weaker New Zealand dollar and so help rebalance the growth outlook for trade commodities and boost export.

The Bank of Japan also left its Monetary Policy stance remain unchanged with the official interest rate unchanged at -0.1 percent at its June 2017 meeting.

This was in a bid to continue with its Quantitative and Qualitative Monetary Easing (QQE) with Yield Curve Control program to stimulate the economy to achieve its 2.0 percent inflation target.

For the Euro Area economy the European Central Bank held its benchmark interest rate at 0.0 percent for the eleventh consecutive meeting in June 2017.

According to ECB President Mario Draghi; a very substantial degree of monetary accommodation was still needed for underlying inflation pressures to build up, and to support headline inflation in the medium term.

However, the Federal Reserve had raised their official interest rate by 25bps to 1.25 percent during its June 2017 meeting.

This was on the back of strong economic data mainly the strong labour market conditions and rising economic activities.

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