Liquidity still worryingly high, Narube warns

Liquidity remains high, a wor­rying position it has held for a long time, former Reserve Bank of Fiji Governor Savenaca Narube, said.

It is largely due to buoyant foreign reserves, he said. Liquidity is the uncommitted cash that commercial banks hold.

Bumping along below potential Fiji's liquidity rate is around $2.2 billion. Mr Narube questioned the exten­sive prevalence of Fiji's liquidity rate and its impact on investments, jobs and incomes.

"The persistently high liquid­ity reflects the sluggishness of the economy; which is bumping along at a pace well below our potential," he said.

"Therefore, the demand for loans by new businesses and investment remains subdued.

"Commercial banks have little incentive to reduce their large idle cash holdings because they are still making very high profits."

Mr Narube said the banks in­vested on Government bonds to get some returns.

"The situation also reflects the in­stitutional ownership of the finan­cial system," he said.

"The Fiji National Provident Fund is the largest player with assets more than all commercial banks combined.

"The commercial banks there­fore allow for the risk of the Fiji National Provident Fund (FNPF) moving large amounts of cash very quickly."

Lack of reforms

As a result, the situation with li­quidity would remain for a long time, Mr Narube said.

"The only way to improve the ef­ficiency of the financial system is to implement a wide range of economic and financial reforms to drive the economy to its potential of around five per cent growth per year," he said.

His comments followed the find­ings of a Parliament Standing Com­mittee, which said interest on Gov­ernment bonds remained stagnant since 2020, because of high liquid-ity in the market. Zero interest rate

Liquidity in the market could be linked to the almost-zero deposit in­terest rates, former business owner, Mike Towler said.

"But sending the money we have offshore for investment would cre­ate a large flight of money offshore, that could result in the overnight disappearance of our current li­quidity;" Mr Towler said.

"That would not be good for us."

The Parliament committee's re­port on Fiji National Provident Fund said the Government and Re­serve Bank of Fiji should facilitate easier approval processes for off­shore investments, to enable great­er diversification and improved returns.

The Reserve Bank of Fiji did not respond to queries from SunBiz.