Reserve Bank Observes Growth In Multiple Sectors

RESERVE BANK OF FIJI MAY ECONOMIC REVIEW Global economic conditions in the first quarter remained positive attributed to improvements in emerging market economies which offset theslowdown in advanced economies. However,
04 Jun 2018 14:23
Reserve Bank Observes Growth In Multiple Sectors


Global economic conditions in the first quarter remained positive attributed to improvements in emerging market economies which offset theslowdown in advanced economies.

However, geopolitical tensions heightened after the United States (US) pulled out from the Iran nuclear deal is expected to add upward pressure on fuel prices.

Nonetheless, the current accommodative financial conditions, expectations of increased personal consumption and generally low unemployment rates are projected to support the positive global growth outlook (3.9 per cent) for this year.

Movements in global commodity prices were mixed in April as crude oil and food prices rose while gold and sugar prices noted declines.

The impending closure of the Venezuelan oil company and the US imposed sanctions placed upward pressure on oil prices while gold and sugar prices declined due to a stronger US dollar.

Meanwhile, the increase in food prices was underpinned by continued higher prices noted for both dairy and cereals.


Domestic movements

Domestically, sectoral performances were generally positive with firm recovery noted in some sectors.

Cumulative to April, visitor arrivals grew by 1.4 per cent with increased arrivals from New Zealand, US, China, India and the rest of Asia.

In addition, gold and timber production continued to show significant improvements in the same period.

Likewise, electricity generation also grew by 0.9 percent, with 70.5 percent of total generation sourced from renewable sources.

However, fish production fell by 5.3 percent in the year to March but is expected to pick up in the months ahead as weather conditions are anticipated to be more favourable.

In terms of aggregate demand, consumption activity remains strong while partial indicators for investment revealed mixed outcomes over the month.


Consumption activity

In the year to April, partial indicators for consumption activity portrayed positive results as new lending by commercial banks for consumption purposes noted a growth of 18 per cent led by an increase in lending to the wholesale, retail, hotels and restaurant (21.1 per cent) and private individuals (8.7 per cent) categories.

Similarly, new (61.3 per cent) and second hand (12 per cent) vehicle registrations, together with domestic (9.7 per cent) and net (6.9 per cent) VAT collections also increased in the same period.

Looking ahead, consumer spending is expected to remain strong largely supported by the prevailing accommodative monetary policy and Government’s expansionary fiscal policy.

Partial indicators for investment activity revealed mixed results in the review period.



Cumulative to April, cement production and domestic cement sales both declined by 31.3 per cent and 24.4 per cent, respectively.

Similarly, new commercial bank lending for investment purposes also fell cumulative to April (-25.5 per cent) underpinned by declines in lending to both the real estate (-14.7 per cent) and the building and construction (-39.6 per cent) sectors.

Despite the temporary slowdown, construction and investment related activities are anticipated to pick up in the coming months underpinned by post disaster rehabilitation works as well as the ongoing private and public sector projects.

Investment as a per cent of GDP is projected to be around 28 per cent this year.


Labour market

Labour market conditions continued to be favourable.

As per the RBF’s survey on job advertisements, the total number of vacant jobs advertised in both the Fiji Times and the Fiji Sun grew by an annual 3.3 per cent cumulative to April.

Higher recruitment intentions were noted from the manufacturing, electricity and water, transport, storage and communications, and the community, social and personal services sectors.

In general, employment prospects are expected to remain favourable in line with the domestic economic growth outlook.



Financial conditions remained sound and conducive to growth.

Private sector credit grew at a slower pace (7.7 per cent) in April 2018 to $7,517.2 million, compared to a 13.6 percent growth a year earlier, largely led by lower growth in commercial bank lending to the private sector.

Lending rates generally remained low while deposit rates rose. The weighted average outstanding lending rate of commercial banks rose over the month to 5.68 per cent in April 2018 but remained low compared to 5.74 per cent in April 2017.



The commercial banks’ weighted average new lending rate fell to 5.90 per cent over the month (from 6.24 per cent) as well as over the year (from 5.93 per cent).

However, in the same period, commercial banks’ existing and new time deposit rates rose to 3.34 per cent and 3.44 per cent respectively, from 3.30 per cent and 3.17 per cent noted in March.

Liquidity in the banking system (measured by commercial banks’ demand deposits) remained adequate at $543.9 million in April led by an increase in foreign reserves ($28m) coupled with a decrease in statutory reserves deposits (-$10.1m).

As at May 30, liquidity stood at $526.2 million.


Foreign currency

Over the month in April, the Fijian dollar rose against the Japanese Yen (1.1 per cent), the New Zealand (0.9 per cent) dollar, the Euro (0.6%) and the Australian dollar (0.2 per cent), but fell against the US (-0.9 per cent) dollar.

The Nominal Effective Exchange Rate (NEER) fell marginally by 0.03 per cent over the month and a higher 1.3 per cent over the year, indicating the weakening of the Fiji dollar against the major trading partner currencies in April.

The Real Effective Exchange Rate (REER) rose both over the month and over the year in April, by 1.2 per cent and 0.9 per cent respectively, indicating deterioration in our international competitiveness.


Foreign reserves

Foreign reserves (RBF Holdings) increased over the month of April to $2,183.3 million, sufficient to cover five months of retained imports of goods and non-factor services (MORI).

As at May 31, foreign reserves were $2,163.3 million, sufficient to cover five MORI and are forecast to remain at comfortable levels by year-end.

In light of the latest global and domestic economic developments and the stable outlook for inflation and foreign reserves, the Reserve Bank Board maintained the Overnight Policy Rate at 0.5 per cent in May.




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