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Friday, November 27, 2009

Banks to celebrate as Reserve Bank of Fiji removes interest rate controls

The Reserve Bank of Fiji has announced that, with effect from 1 January 2010, it will be removing the interest rates controls that it imposed on banks in Fiji in April 2009.

The announcement is expected to cause celebrations amongst banks in Fiji who had been under pressure to reduce their interest spreads and margins since the controls were put into effect.

The change in policy stance rose after the IMF made comments regarding the policy mix used by the central bank to conduct monetary policy and urged the authorities to "utilize more market-based instruments". (Quote is taken from IMF Statement after the conclusion of its Article IV consultations in Fiji, which has been posted earlier on this blog).

In recent years, the Reserve Bank of Fiji had been reinstating direct controls to contain credit (e.g. increases/reductions in Statutory Reserve Deposits and controls on interest spreads/margins), after earlier making a move to use more market based instruments.

An excerpt from today's press release from the Reserve Bank of Fiji is provided below.

"The lending rate and interest rate spread polices will be removed. In April 2009, the Bank announced that the weighted average lending rates of banks and other lending institutions should be brought down to 31 December 2008 levels. All commercial banks have now complied with the lending rate policy of the RBF. In addition, banks are on target to meet the 4 percent interest rate margin policy by December 2009.

In removing the lending rate and interest rate spread policies, Mr. Reddy stated that “all commercial banks are advised to maintain the trend in lending rate and any increase in spread above 4 percent in the future will have to be fully justified and explained to the RBF."

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