Presentation to the Presentation to the

Fiji Institute Fiji Institute of of AccountantsAccountants

THE FIJI ECONOMYTHE FIJI ECONOMYTHE FIJI ECONOMYTHE FIJI ECONOMY

22 May, 201222 May, 2012

WORLD ECONOMY WORLD ECONOMY

PERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOK

WORLD ECONOMY WORLD ECONOMY

PERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOK

5.1

4.0 4.0

5.2

3.83.3

3.9

5.3

3.9 3.54.1

3.0

4.0

5.0

6.0

7.0Forecast @ Sept'11 Forecast @ Jan'12 Forecast @ Apr'12

% Global prospects gradually strengthening but downside risks remain.

WORLD GDP WORLD GDP GROWTHGROWTH

3.83.3

2.8

-0.6

-2.0

-1.0

0.0

1.0

2.0

3.0

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011e 2012f 2013f

Source: IMF World Economic Outlook – April 2012

1.83.0

-8

-6

-4

-2

0

2

4

6

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

US

0.8

0.4

-1.0

0.0

1.0

2.0

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

Australia

0.70.3

-2

-1

0

1

2

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

NZ

QUARTERLY GDP GROWTHQUARTERLY GDP GROWTH

2007 2008 2009 2010 2011

0.1

-0.3

-4

-3

-2

-1

0

1

2

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

Euro-zone

0.5

-0.2

-4

-3

-2

-1

0

1

2

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

UK

1.7

-0.2

-5

-3

-1

1

3

2007 2008 2009 2010 2011

P

e

r

c

e

n

t

Japan

Source: Bloomberg

1.7 2.01.4

-0.7

1.42.1

3.02.3 2.0

-0.3

2.4

3.5 3.2

1.70.9

-2.0

0.0

2.0

4.0

6.0

United States Australia New Zealand Japan Eurozone

2011(e) 2012(f) 2013(f)%

TRADING PARTNERS’ OUTLOOKTRADING PARTNERS’ OUTLOOK

9.2

7.2

0.1

5.13.6

5.0 4.9

8.26.9

5.54.4

3.52.6 2.7

8.8

7.37.5

4.7 4.0 4.2 3.9

0

5

10

15

China India Thailand Malaysia Korea Hong Kong Singapore

Source: IMF World Economic Outlook –April 2012

ASIA’S ECONOMIC ASIA’S ECONOMIC OUTLOOKOUTLOOK

TRADING PARTNER OUTLOOKTRADING PARTNER OUTLOOK

2011 REVISED 2012 GROWTH FORECASTS

Trading

PartnerJan April Change

US 1.7 1.8 2.1

Japan -0.7 -0.9 2.0

Euro zone 1.4 1.6 -0.3

Sources: IMF World Economic Outlook –Apr/Jan 2012 and *Asia Pacific Consensus Forecast - Jan 12

Euro zone 1.4 1.6 -0.3

Aust* 2.0 2.0 3.0

NZ* 1.4 1.7 2.3

UK 0.7 0.9 0.8

China 9.2 9.2 8.2

India 7.2 7.4 6.9

World Market Sugar PricesWorld Market Sugar Prices

New YorkNew York

0

5

10

15

20

25

30

35

40

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

WM Sugar Price (US$) EU Sugar Price(US$)

WM - 18/05 US20.47cents/pound

F

u

t

u

r

e

s

US cents/1b

Sources: Bloomberg and Fiji Sugar Corporation

EU - 17/05 US29.69cents/pound

Gold PricesGold Prices

End of MonthEnd of Month

CRUDE (Brent) Oil PricesCRUDE (Brent) Oil Prices

End of MonthEnd of Month

200

400

600

800

1,000

1,200

1,400

1,600

1,800

2,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US $/oz

F

u

t

u

r

e

s

18/05 US$1589.50/oz

0

20

40

60

80

100

120

140

160

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

US $/barrel18/05– US$107.98/barrel

F

u

t

u

r

e

s

Source: Bloomberg

DOMESTIC GROWTH DOMESTIC GROWTH

PERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOK

DOMESTIC GROWTH DOMESTIC GROWTH

PERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOKPERFORMANCE & OUTLOOK

EVOLUTION OF THE FIJI ECONOMY

1970’s to 1980’s – Post Colonial Era

Major Economic Sectors

• Sugar – backbone of the Fijian

economy

• Tourism

• Rice

• Cocoa

• Dairy

• Construction Industry

Inward Looking Polices

• High protective tariffs and quotas

Major Developments and Policies

Government Support for domestic industries

• Subsidies – copra price support, coconut

replanting subsidy

• Expansion of infrastructure development,

particularly in key investment locations –

Ministry of Finance

particularly in key investment locations –

Sigatoka Valley

Infrastructure development after independence

• Suva – Nadi Highway

• Construction of Airports, wharfs and rural &

outer island roads

• Monasavu Hydro Dam

Preferential prices + quota for sugar exports

(Cotonou Agreement)

EVOLUTION OF THE FIJI ECONOMY

1990’s

Economic Sectors

• Tourism

• Sugar

• Mining

• Mineral Water

• Fish

• Forestry

Fiji’s accession to the WTO – 1996

• As part of the trade liberalization process, Government

removed import restrictions (quota’s, licenses and reduction

in tariffs rates)

• Trade Liberalization and the fall in world commodity prices

affected uncompetitive domestic industries – Rice, Dairy,

Cocoa, etc

• This entice Government’s to focus on transforming Fiji into

an export oriented economy

New industries

Ministry of Finance

an export oriented economy

Major Developments and Policies

• Expansion of tourism industry led to the construction of new

resorts and tourist facilities

• This led to the introduction of the Hotel Aid Act incentives – 20

year tax holiday

• New resource discoveries

• Mineral Water – Provision of 13 year Tax Free Factory status

• Mining – Vatukaula Tax Agreement – 7 year Tax holiday

reviewed and extended over the years, tariff concessions on

imports of specialized equipments

EVOLUTION OF THE FIJI ECONOMY

2000’s

Economic Sectors

• Tourism - Rapid Expansion

• Sugar - Slowdown due to gradual

reduction in preferential prices

and low production

• Fishing

• Mining

• Mineral Water

Major Developments and Policies

• Structural Reforms - Establishment of Land

Bank, Sugar Industry reforms

• Targeted incentives for priority growth sectors

• Tax holidays – 7 years for tourism resort

development, 5 years for commercial agriculture

investments, etc

• Creation of new Tax Free Regions in economically

Ministry of Finance

• Mineral Water

• Forestry

• Manufacturing (Flour, beer,

cigarettes, cement, soap)

• Clothing and Textiles

• Audio Visual & ICT

• SME development

• Creation of new Tax Free Regions in economically

depressed locations – Vanua Levu and outer

islands

• Continuation of Government Funded

Programmes and infrastructure development

• Mining Exploration and development – Namosi,

Nawailevu, etc

• Securing of Niche markets

• Extension of SPARTECA agreement – TCF

industry

New industries

30.829.4

36.135.3

25

35

451989 Base (1997) 1995 Base(2002) 2005 Base (2007) 2005 Base (2012)

Percentage

Primary Industry Services

14.0

0.8 1.3

3.1

13.7

8.1

13.0

2.8

8.7

3.7

12.0

1.1

2.71.4

15.7

8.0

11.6

4.6

9.7

3.8

10.4

0.9

2.6

-0.1

14.2

4.1

12.4

4.4

8.6

6.5

9.4

1.32.7

0.7

14.9

3.9

10.6

6.2

9.2

5.8

-5

5

15

25

Agri Frsty Fish Min & Qry

Manuf Other indus

WRT Hotels Trans Comm Other Serv

Source: Fiji Bureau of Statistics

6

8

10

12

14

Percentage

-8

-6

-4

-2

0

2

4

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009(r) 2012(f)

Sources: Fiji Bureau of Statistics and Macroeconomic Committee

8

10

12

14

Actuals Average 5 Years Average 2000s

Average 1970s Average 1980s Average 1990s

Percentage

Average 2000s = 0.8%

Average 1970s = 5.5%Average 1980s = 1.9%

Average 1990s = 3.0%

Volatile & Low Economic PerformanceVolatile & Low Economic Performance

-0.2

2.12.3

-8

-6

-4

-2

0

2

4

6

1970 1973 1976 1979 1982 1985 1988 1991 1994 1997 2000 2003 2006 2009(r) 2012(f)

Average 2000s = 0.8%

Average 5 Years = 0.1%

Sources: Fiji Bureau of Statistics and Macroeconomic Committee

SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE SECTORAL PERFORMANCE

703675

500

600

700

800Forecast as @ Nov 2011

Annual

980

1,050

1,093

800

1,000

1,200

Forecasts as @ Nov 2011

Annual

‘000s

TOURISMTOURISM

$M

Arrivals & Earnings are at record levels

Arrivals Earnings

0

100

200

300

400

500

2003 2005 2007 2009 2011(e)

0

200

400

600

800

2002 2004 2006 2008 2010 2012(f)

Sources: Fiji Bureau of Statistics and Macroeconomic Committee

517

350

400

450

500

550

Annual

Forecast as @ Nov 2011

‘000 tonnes

SUGARSUGAR

302

250

300

350Annual

Forecasts as @ Nov 2011

$million

Production & earnings expected to increase

Production Earnings

132

167

189

0

50

100

150

200

250

300

350

1994 2005 2007 2009 2011

Sources: Fiji Sugar Corporation Limited and Macroeconomic Committee

70

139

166

0

50

100

150

200

1996 2005 2007 2009 2011(p)

30

25

30

35

Cum to Sept

Annual

Forecast as @ Nov 2011

‘000 tonnes $M

209

150152

200

250

Annual

Forecasts as @ Nov 2011

FISHFISHMarginal growth expected in production & earnings

Production Earnings

1313

14

0

5

10

15

20

2003 2005 2007 2009 2011(e)

Source: Fiji Bureau of Statistics

%

150

0

50

100

150

2003 2005 2007 2009 2011 (e)

$M

150

120

160

Forecast as @ Nov

Annual

‘000 ounces

GOLDGOLD

Higher production & earnings forecast

Production Earnings

148 142

181

150

200Annual

Forecasts as @ November 2011

Sources: Vatukoula Gold Mines Limited and Macroeconomic Committee

63

50

0

40

80

1997 2004 2006 2008 2010 2012(f)

0

50

100

150

2002 2004 2006 2008 2010 2012(f)

85 86

100

80

100

120

Annual

Forecasts as @ November 2011602

704

600

700

800

Annual

Forecast as at Nov 2011

000 m3$MProduction Exports

TIMBERTIMBERProduction & earnings expected to increase

37

0

20

40

60

80

2002 2004 2006 2008 2010 2012(f)0

100

200

300

400

500

1995 2003 2005 2007 2009(e) 2011(e)

Source: Fiji Bureau of Statistics and Macroeconomic Committee

322

280

350

Annual

Forecasts as @ Nov 2011

90

140

160

180

200

Annual

Forecast as @ Nov 2011

Cum to Jun

GARMENTGARMENT

$M$M

Positive outlook for production & earnings

Production Earnings

9689 92

0

70

140

210

2000 2003 2005 2007 2009 2011(e)

61

0

20

40

60

80

100

120

2002 2004 2006 2008 2010 2012(f)

Source: Fiji Bureau of Statistics

62

87

105110

80

119 122 124 127

80

100

120

140

Annual Forecasts as @ November 2011$M

MINERAL WATER EXPORTSMINERAL WATER EXPORTS

29

4652

68

0

20

40

60

80

2002 2003 2004 2005 2006 2007 2008 2009 2010 2011(p) 2012(f) 2013(f)

Sources: Fiji Bureau of Statistics and Macroeconomic Policy Committee

213

232

297311

322

256

294 295 290 299 299300

400

Annual Forecasts as @ Nov 2011

$M

PERSONAL REMITTANCESPERSONAL REMITTANCESStable foreign exchange earner

Sources: Fiji Bureau of Statistics and Macroeconomic Committee

188

0

100

200

2002 2004 2006 2008 2010 2012(f)

KEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORSKEY EXPORT SECTORS

2007: EXPORT EARNINGS2007: EXPORT EARNINGS

874

500

600

700

800

900

F$MAverage Earnings (2007-2010)

MAJOR FOREIGN EXCHANGE EARNERSMAJOR FOREIGN EXCHANGE EARNERS

258

173 150

105 10455

0

100

200

300

400

500

Tourism Remittances Sugar Fish Clothing & Footwear

Mineral Water

Gold

Sources: Fiji Bureau of Statistics and Macroeconomic Committee

9

12

15Monthly % change Headline Exc. volatile items 2012 Forecast

Percentage

April

6.4

INFLATIONINFLATIONINFLATIONINFLATION

1.9

3.5

-3

0

3

6

2007 2008 2009 2010 2011 2012

6.4

Source: Reserve Bank of Fiji and Fiji Bureau of Statistics – CPI release (April - 12)

MONETARY SECTORMONETARY SECTOR

Recovery in credit growthRecovery in credit growth

MONETARY SECTORMONETARY SECTOR

Recovery in credit growthRecovery in credit growthRecovery in credit growthRecovery in credit growthRecovery in credit growthRecovery in credit growth

15.0

20.0

25.0

2,500

3,000

3,500

4,000

Annual Percentage Change

LCIS - $367m

Commercial Bank - $3,125m

$M

Total PSC- $3,492m

%

-5.0

0.0

5.0

10.0

0

500

1,000

1,500

2,000

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12

6.7%

EXTERNAL POSITIONEXTERNAL POSITIONMaintain stable reserves, lower inflationMaintain stable reserves, lower inflation

EXTERNAL POSITIONEXTERNAL POSITIONMaintain stable reserves, lower inflationMaintain stable reserves, lower inflationMaintain stable reserves, lower inflationMaintain stable reserves, lower inflationMaintain stable reserves, lower inflationMaintain stable reserves, lower inflation

0

10

20

% of GDP

Services & Income Net

Improved trade deficit & service inflows to lower deficit in 2012Improved trade deficit & service inflows to lower deficit in 2012

CURRENT ACCOUNT BALANCECURRENT ACCOUNT BALANCE

-40

-30

-20

-10

0

2005(r) 2007(r) 2009(r) 2011(f)

Current Account DeficitTrade Deficit

Source: Fiji Bureau of Statistics and Macroeconomic Committee

1,091

1,303

1,513 1,489

4.7

5.0

6.0

7.0

1,000

1,200

1,400

1,600

RBF Holdings

Retained Imports Cover

Benchmark months of imports cover

F$M Months of Imports

FOREIGN RESERVESFOREIGN RESERVES

549 515

805

559

4.7

0.0

1.0

2.0

3.0

4.0

0

200

400

600

800

2005 2006 2007 2008 2009 2010 2011 14-May-12

Source: Reserve Bank of Fiji

FISCAL POSITIONFISCAL POSITIONTowards fiscal consolidationTowards fiscal consolidation

FISCAL POSITIONFISCAL POSITIONTowards fiscal consolidationTowards fiscal consolidationTowards fiscal consolidationTowards fiscal consolidationTowards fiscal consolidationTowards fiscal consolidation

34

0.6

-1

0

1

-50

0

50

100

2007 2008 2009 2010 2011 (R) 2012 (B) 2013 (T) 2014 (T)

$M % of GDP

Ministry of Finance

-109

-233

-131

-216

-135-114 -120

-2.0

-4.1

-2.1

-3.5

-1.9-1.5 -1.5

-5

-4

-3

-2

-300

-250

-200

-150

-100

3.53.7 3.8 3.9

53.3%

49.9%50.5%

55.6% 55.6%

51.5%

51.2%50.2% 49.1%

35%

40%

45%

50%

55%

60%

4.0

5.0

6.0

7.0

8.0

$B

International Benchmark

GOVERNMENT DEBT

* With net deficit: 1.9% of GDP in

2012, 1.5% in 2013 and 1.5% in

2014.

* Based on current GDP projections

2.9 2.72.9

3.13.4

3.5

10%

15%

20%

25%

30%

35%

0.0

1.0

2.0

3.0

4.0

2006(A) 2007(A) 2008(A) 2009(A) 2010(P) 2011(B) 2012(B) 2013(T) 2014(T)

Govt Debt Debt as % of GDP

International Benchmark

INVESTMENTINVESTMENT

Need to raise investment levelsNeed to raise investment levels

INVESTMENTINVESTMENT

Need to raise investment levelsNeed to raise investment levelsNeed to raise investment levelsNeed to raise investment levelsNeed to raise investment levelsNeed to raise investment levels

• Investment target of 25.0 percent

of GDP

• Investment Gap of $750 million

needed

• Significant reduction in private

investment to 4.0 percent from 15.0

percent in 1980. 20

25

30

35

$750m

Government Target: 25%

percent in 1980.

• Consequently, Government has had

to increase its capital spending

($500m+)

• Increase in Government investment

to 8.0 percent in 2011 from 5.0

percent in 1980.

• Need to increase private sector

participation in the economy – as

engine of growth.

0

5

10

15

1977 1987 1997 2007(e)

� 2012 Growth outlook is positive, supported by moderate

growth in key markets and reconstruction following the

recent floods

� Real sector performances are mixed

� Consumption spending is positive but business

investment remains subdued

� Credit to the private sector is picking up & ample

liquidity in banking system

� Comfortable projection for foreign reserves & inflation

• Need to address fundamental challenges :

o Raising growth and investment;

o Fast-tracking structural reforms;o Fast-tracking structural reforms;

o Prudent financial management by government;

o Ensuring debt sustainability

(including contingent liabilities);

o Facilitating inclusive development; and

o Safeguarding against economic shocks.

ROLE OFROLE OF

MONETARY POLICYMONETARY POLICY

ROLE OFROLE OF

MONETARY POLICYMONETARY POLICYMONETARY POLICYMONETARY POLICYMONETARY POLICYMONETARY POLICY

The Role of Monetary Policy in the Economy

Provide proactive and sound advice to Government

To foster economic growthTo foster economic growthEnhance our role in the development of the economy

Develop an internationally reputable financial system

Disseminate timely and quality information

Recruit, develop and retain a professional team

Definition:

• When key economic relationships are in balance:

• Internal balance – real output is at or close to its capacity & the inflation rate is low and non-acceleration

• External balance – current account position is sustained by capital flows on terms compatible with the growth prospects of the economy without resort to restrictions on trade and payments

Why is it important?

• A stable macroeconomic policy environment is conducive to growth, i.e. when

• Inflation is low and predictable

• Real interest rates are appropriate

• Fiscal policy is stable and sustainable

• Real exchange rate is competitive & predictable

• BOP situation is perceived as viable

How do we achieve macroeconomic stability?

• Stabilisation policies• Application of policies to address or prevent the

emergence of imbalances in the economy• Expenditure-reducing – fiscal (expenditure restraint, revenue-

raising initiative), monetary (higher interest rates)raising initiative), monetary (higher interest rates)

• Structural policies• Changing aspects of the structure or organisation of the

economy that contribute to long-term imbalances• Improve efficiency of resource allocation, raise potential

output that allow for stabilisation at higher output level• Price adjustment & liberalisation, financial sector

reforms, transparency & good governance

Sources of macro instability?

• Exogenous shocks

• Terms of trade shocks, natural disasters

• Inappropriate policies• Inappropriate policies

WHAT IS MONETARY POLICY?

Definition of Monetary Policy:

• Refers to the policies of the Reserve Bank of Fiji to change the money supply and the interest rate, and thereby affect economic interest rate, and thereby affect economic activity

• Simply, the process of managing money

WHAT ARE THE OBJECTIVES OF MONETARY POLICY?

TO PROMOTE MONETARY STABILITY

• Low Inflation • Low Inflation • Adequate Foreign Reserves

HOW IS MONETARY POLICY FORMULATED?

Policy Coordination Committee

Monetary Policy Committee

Board

ChairChair

Chief Manager Economics, Financial Markets, Financial Institutions, Financial System Development and Compliance, Currency and Corporate Services, Executive Services

Members

Economists, Senior Economists and Managers

Chair

Governor

Members

Executive Management

Chair

Governor

Members

Board Directors

HOW IS MONETARY POLICY IMPLEMENTED?

Tools

• Interest Rate • Interest Rate

•Credit Controls

•Statutory Reserve Ratio

•Directed Lending

•Open Market Operations

•Exchange Rate

Final Objectives (Price stability &

reserves)

Intermediate objectives (monetary

Indicators(monetary aggregates)

Operational Targets(OPR)

Instruments (OMO, SRD)

Indicators

• The OPR is used as the benchmark to signal RBF’s policy intentions – in other words, the RBF sends out a signal to commercial banks of which direction it wants interest rates to move

WHAT IS THE OVERNIGHT POLICY RATE (OPR)?

• Conduct of OMO is geared towards aligning the actual RBF 91 Day rate to the OPR

• If RBF raises OPR - Tightening of Monetary Policy

• If RBF lowers OPR - Easing of Monetary Policy

3.00

3.50

4.00

4.50

5.00

OPR BDD Rate

Repo rate

Effective 17 May 2010%

Operational Targets(OPR)

Instruments (OMO, SRD)

0.00

0.50

1.00

1.50

2.00

2.50

Jun-10 Aug-10 Oct-10 Dec-10 Feb-11 Apr-11 Jun-11 Aug-11 Oct-11 Dec-11 Feb-12 Apr-12

Repo Rate: 1.00%

BDD Rate: 0.00%

OPR: 0.50%

OPEN MARKET OPERATIONSOPEN MARKET OPERATIONS

What are Open Market Operations (OMO):

• Buying and selling of securities by the central bank to change the amount of money circulating in the economy

• Changes in the money supply will then affect movements in short-term interest rates

• Changes in interest rates will then impact on the RBF’s monetary policy objectives

• By selling or redeeming Notes,

the RBF adds or withdraws

funds from the market.

• If Sell RBF Notes Liquidity falls IR

• If Redeem RBF Notes Liquidity rises IR

• Changes in the level of funds affects short-term interest rates, including that paid on RBF Notes.

Jun-10 SRD increased to 8.5%

Jul-10 SRD increased to 10.0%

May-10

Adoption

of new

monetary

policy

framework

Nov-10 OPR reduced to 2.5%

Apr-11 OPR reduced to 1.5%

EVOLUTION OF NEW MONETARY POLICYEVOLUTION OF NEW MONETARY POLICY

Feb-11 OPR reduced to 2.0%

0

2

4

6

8

10

%

Overnight Policy Rate

Statutory Reserve Deposit

Nov-11 OPR reduced to 0.5%

JUL-11 AUG-11 SEP-11 OCT-11 NOV-11 DEC-11 JAN-12 FEB-12 MAR-12 APR-12

OPR 1.50 1.50 1.50 1.50 0.50 0.50 0.50 0.50 0.50 0.50

14-Day T-Bills 1.12 1.08 n.i 1.08 0.50 0.50 0.50 n.i n.i 0.47

28-Day T-Bills 1.16 1.05 1.05 1.05 0.56 0.50 0.73 0.70 n.i 0.67

56-Day T-Bills 1.25 1.14 n.i 1.08 1.05 0.80 0.75 0.75 n.i 0.75

MONEY & CAPITAL MARKET RATESMONEY & CAPITAL MARKET RATES

91-Day T-Bills 1.35 1.15 n.i 1.10 1.00 n.i 0.80 0.80 0.80 n.i

14-Day RBF

Noten.i n.i n.i n.i n.i n.i n.i n.i n.i n.i

- 3 years 2.75 2.65 2.60 n.i n.i n.i n.i n.i n.i n.i

- 5 years n.i n.i n.i n.i n.i n.i n.i n.i n.i 4.00

- 10 years n.i n.i n.i n.i n.i n.i n.i 6.75 6.60 5.00

- 15 years 6.72 6.19 5.80 5.80 5.80 6.59 n.i 7.00 7.00 n.i

8

10

12

OUTSTANDING BANK LENDING AND OUTSTANDING BANK LENDING AND

DEPOSIT RATESDEPOSIT RATES%

Lending rate 7.13%

Time Deposit Rate 2.65%

Savings Deposit Rate 0.85%

0

2

4

6

Apr-06 Oct-06 Apr-07 Oct-07 Apr-08 Oct-08 Apr-09 Oct-09 Apr-10 Oct-10 Apr-11 Oct-11 Apr-12

15.0

20.0

25.0

2,500

3,000

3,500

4,000

Annual Percentage Change

LCIS - $367m

Commercial Bank - $3,125m

$M

PRIVATE SECTOR CREDITPRIVATE SECTOR CREDIT

Total PSC- $3,492m

%

-5.0

0.0

5.0

10.0

0

500

1,000

1,500

2,000

Mar-07 Sep-07 Mar-08 Sep-08 Mar-09 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 Mar-12

6.6%

THE RBF PUTS MONEY INTO THE RBF PUTS MONEY INTO THE SYSTEM, OR TAKES IT OUT THE SYSTEM, OR TAKES IT OUT BY BUYING OR SELLING RBF NOTES BY BUYING OR SELLING RBF NOTES (OPEN MARKET OPERATIONS)(OPEN MARKET OPERATIONS)

Monetary Transmission MechanismMonetary Transmission Mechanism

SHORTSHORT--TERM TERM INTEREST RATESINTEREST RATES

OTHER OTHER INTEREST RATESINTEREST RATES

ECONOMIC ECONOMIC ACTIVITYACTIVITY

INFLATIONINFLATIONFOREIGN RESERVESFOREIGN RESERVES

� 2012 Growth outlook is positive, supported by moderate

growth in key markets and reconstruction following the

recent floods

� Real sector performances are mixed

� Consumption spending is positive but business

investment remains subdued

� Credit to the private sector is picking up & ample

liquidity in banking system

� Comfortable projection for foreign reserves & inflation

FUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGESFUTURE CHALLENGES

• Need to address fundamental challenges :

o Raising growth and investment;

o Fast-tracking structural reforms;o Fast-tracking structural reforms;

o Prudent financial management by government;

o Ensuring debt sustainability

(including contingent liabilities);

o Facilitating inclusive development; and

o Safeguarding against economic shocks.

THANK YOUTHANK YOUTHANK YOUTHANK YOUTHANK YOUTHANK YOUTHANK YOUTHANK YOU

Reserve Bank of Fiji