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Wednesday, February 25, 2009

The Reserve Bank of Fiji Clarifies Issues on Liquidity

In a Reserve Bank of Fiji press release dated 24 Feb 2009, the RBF has clarified that the low availability of funds for lending in the financial sector, which resulted in an increase in interest rates was not because of RBF’s monetary policy but was a direct result of the outflow of foreign reserves. Last week, ANZ increased its rates by 0.5% while Westpac will increase its rates today by 0.25% and a second increase on the 23/03/09 of another 0.25%.

In response to the tightening liquidity for banks, the RBF has advised banks to continue using the overnight inter-bank market and offering competitive rates for deposits. If these measures fail, banks can borrow from RBF’s overnight lending facility also known as lender of last resort facility. In addition, RBF has an export finance facility whereby banks can borrow at a maximum interest rate of 2% and lend to exporters at concessional rates. The purpose being to promote exports and improve the short-term liquidity needs of banks.

The Governor of RBF, Mr. Savenaca Narube allayed fears of a credit crunch and said “the Reserve Bank will ensure that the financial market will continue to operate smoothly and that the financial system will remain sound.”

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