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Saturday, June 17, 2006

Reserve Bank projects economic growth for 2006 at 2.7%

The Reserve Bank of Fiji has projected economic growth for 2006 at 2.7% after revised growth projections for 2005 was 1.5%, the Reserve Bank's latest Quarterly Review for March 2006. The following sectors are expected to be the main drivers of growth this year :
  • transport and communications;
  • agriculture, forestry, fishing & subsistence;
  • community, social & personal services.
In 2005, the following sectors drove economic growth :
  • building and construction;
  • wholesale and retail trade;
  • hotels & restaurants;
  • finance, insurance, real estate and business services.
Partial indicators of consumer spending indicate that consumption remained firm into the first quarter of the year. In addition, currency in circulation and lending for consumption purposes also showed healthy growth over the same period. Consumption activity is also being supported by rising incomes.

The tourism industry continued its robust performance as the latest official estimates indicate a new record year for visitor arrivals in 2005. In the years ahead, growth in the tourism industry will be supported by increased room inventory and a rise in inbound flights.

Investment levels also noted a gradual pick up, supported by buoyant activities in the building and construction sector. In addition, output in copra, fishing, timber and electricity industries rose on an annual basis during the review quarter.

However, production in the mining and quarrying and clothing and footwear sectors remained weak.

Inflation remained moderate during the quarter. Labour market conditions improve over the review quarter as suggested by partial indicators.

Following the 50 basis point hike in October, the Reserve Bank raised its policy indicator rate by a further 100 basis points in February 2006 to 3.25%.

In implementing this recent change, the Bank noted that the environment had not changed since the previous policy decision. Consumption was still strong supported by strong credit growth and oil prices remained high, factors which contributed to a growing imports bill. The Bank considered this trend unsustainable given the continuing underperformance of the exports sector.

This led to the further interest rate rise to reign in credit expansion and protect Fiji's overall macroeconomic stability.

In March 2006, the Reserve Bank raised the Statutory Reserve Deposit ratio for commercial banks from 5% to 7% of a bank's deposits base. This was effective from 8 May.

The minimum lending rate was also increased from 50 basis points to 100 basis points above the policy indicator rate. The minimum lending rate denotes the rate a bank pays for borrowing funds from the Reserve Bank to meet any shortfalls it may have on a daily basis, after having first resorted to the interbank market.

The Bank will continue to monitor developments in the economy over the coming months and align monetary policy accordingly.

Source : Reserve Bank of Fiji, Quarterly Review, March 2006.

Note from GV : Individuals and groups that need investment advice can use our company, Gilbert & Samuels Company Limited. Our contacts are : telephone +679 3396427 or e-mail gilbert@connect.com.fj.

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