Fiji macroeconomic history 2006 current
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FIJI: MACROECONOMIC HISTORY 2006-current. Reserve Bank of Fiji PFTAC Workshop, Samoa November 2011. 2006. Buoyant domestic demand, drain on foreign reserves, widening trade deficit

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FIJI: MACROECONOMIC HISTORY 2006-current

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Fiji macroeconomic history 2006 current

FIJI: MACROECONOMIC HISTORY2006-current

Reserve Bank of Fiji

PFTAC Workshop, Samoa

November 2011


Fiji macroeconomic history 2006 current

2006

Buoyant domestic demand, drain on foreign reserves, widening trade deficit

Fairly strong demand conditions (Positive output gap, acceleration in Private Sector Credit Growth, Increase in imports)

Foreign reserves plummeted. Monetary policy tightened further. Credit ceiling adopted.


Fiji macroeconomic history 2006 current

Monetary Policy Tools :

  • Credit Ceiling (Dec 06 – Sep 09)

  • Moral Suasion

  • Capital Controls

  • Use of Policy Indicator Rate (PIR) [RBF 91-day note]

  • Open Market Operations [suspended from Jun 07 – Apr 10]

  • Statutory Reserve Deposits


Fiji macroeconomic history 2006 current

OUTPUT GAP


Fiji macroeconomic history 2006 current

CREDIT GROWTH & LIQUIDITY


Fiji macroeconomic history 2006 current

IMPORTS & FOREIGN RESERVES

FNPF Recall in 2006 : F$300m


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

2007

Continuation of credit ceiling

Tighter monetary conditions led to decline in private sector credit growth

Import demand fell

Tightening of exchange control

Foreign reserves improved

Suspension of OMO and reduction of SRD ratio from 7% to 6%

Improvement in current account balance


Fiji macroeconomic history 2006 current

CREDIT GROWTH & LIQUIDITY


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS

Underpinned largely by machinery, transport & equipment,mineral fuel & manufactured goods


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

MONETARY CONDITIONS


Fiji macroeconomic history 2006 current

2008

Oil & Commodity price shocks

High prices

Recovery in domestic demand (easy monetary conditions + exchange rate appreciation)

Deterioration in the current account balance and rapid drain in foreign reserves


Inflation

INFLATION


External sustainability

EXTERNAL SUSTAINABILITY

CAB deteriorated further, after some adjustment in 2007…


External sustainability1

EXTERNAL SUSTAINABILITY


Domestic demand

DOMESTIC DEMAND

Despite the rebound in Q2, import volume was relatively flat…


Domestic demand1

DOMESTIC DEMAND


Domestic demand2

DOMESTIC DEMAND

Monetary conditions was relatively easy in 2008…


External sustainability2

EXTERNAL SUSTAINABILITY


External sustainability3

EXTERNAL SUSTAINABILITY

REER appreciates to a new normal, suggesting that on balance there was a competitiveness loss..


External sustainability4

EXTERNAL SUSTAINABILITY

Rapid drawdown in foreign reserves…


Fiji macroeconomic history 2006 current

2009

Global financial crisis and the devaluation

Very weak domestic demand

Tight monetary conditions

High prices


External sustainability5

EXTERNAL SUSTAINABILITY


External sustainability6

EXTERNAL SUSTAINABILITY


External sustainability7

EXTERNAL SUSTAINABILITY

Substantial improvement in CAB


Domestic demand3

DOMESTIC DEMAND

Demand collapses in the first 3 quarters but recover in the last quarter…


Domestic demand4

DOMESTIC DEMAND


Inflation1

INFLATION


Monetary conditions

MONETARY CONDITIONS

Tight monetary conditions…


External sustainability8

EXTERNAL SUSTAINABILITY


2010 current

2010 - CURRENT

Resurgence in oil & food prices + domestic structural changes (Electricity tariff and VAT)

Stagnant potential output level

Weak demand

High prices


Domestic production

DOMESTIC PRODUCTION

Potential output stagnant after 2005…


Domestic demand5

DOMESTIC DEMAND


Domestic demand6

DOMESTIC DEMAND


Inflation2

INFLATION


External sustainability9

EXTERNAL SUSTAINABILITY

CA sustainability still a worry..


External sustainability10

EXTERNAL SUSTAINABILITY

Foreign reserves moves around 4months cover..


Fiji macroeconomic history 2006 current

END

THANK YOU


Domestic demand7

DOMESTIC DEMAND


Domestic demand8

DOMESTIC DEMAND


Devaluation

DEVALUATION


Devaluation1

DEVALUATION

Immediate depreciation in the REER, representing a competitiveness boost..


Domestic demand9

DOMESTIC DEMAND

Swift adjustment in the output gap after Q2 2009..


Inflation3

INFLATION


Domestic demand10

DOMESTIC DEMAND

Output gap around negative territory in 2010 and expected to have moved into positive territory from Q2 2011..


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