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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

FIJI: MACROECONOMIC HISTORY2006-current

Reserve Bank of Fiji

PFTAC Workshop, Samoa

November 2011


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.


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




IMPORTS & FOREIGN RESERVES

FNPF Recall in 2006 : F$300m






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



MONETARY CONDITIONS

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




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



External sustainability
EXTERNAL SUSTAINABILITY

CAB deteriorated further, after some adjustment in 2007…



Domestic demand
DOMESTIC DEMAND

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



Domestic demand2
DOMESTIC DEMAND

Monetary conditions was relatively easy in 2008…



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…


2009

Global financial crisis and the devaluation

Very weak domestic demand

Tight monetary conditions

High prices




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…




Monetary conditions
MONETARY CONDITIONS

Tight monetary conditions…



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…





External sustainability9
EXTERNAL SUSTAINABILITY

CA sustainability still a worry..


External sustainability10
EXTERNAL SUSTAINABILITY

Foreign reserves moves around 4months cover..


END

THANK YOU





Devaluation1
DEVALUATION

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


Domestic demand9
DOMESTIC DEMAND

Swift adjustment in the output gap after Q2 2009..



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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