Fiji’s liquidity drops in June: RBF

THE country’s excess liquidity in the banking system fell in June by 9.9 per cent, remaining adequate at $482.3million as of July 27.

The central bank in its Economic Review for the month ended July 2018 stated that Fiji’s banking system liquidity, which is measured by commercial banks’ demand deposits with RBF) declined led by a fall in foreign reserves (-$22.9m) coupled with an increase in Statutory Reserve Deposits (+$4.7m) and currency in circulation (+$7.9m).

Liquidity, simply put, are excess funds that our commercial banks have at the end of each day that have not been lent out to borrowers.

These funds are deposited by commercial banks with the RBF and do not accumulate any interest. With Fiji’s economy being mainly driven by consumption, the level of liquidity in the banking system has a bearing on the level of consumption and investment activities in the economy.

The build-up in liquidity may signal positive support for commercial banks in their issuance of loans.

It can also mean that commercial banks have a significant amount of loans that have been approved, but are not fully drawn/utilised.

The central bank, however, stated that despite some upticks, interest rates were still at relatively low levels in June, given the heightened competition and ample liquidity in the banking sector.

Commercial banks’ new lending rate rose over the month to 6.28 per cent from 5.94 per cent in May.

Within the same period, funding costs dropped as indicated by the decline in new time deposits rate from 3.13 percent to 2.93 per cent in June.

The central bank also forecasts that financial conditions would remain conducive to the outlook for domestic growth.

Meanwhile, private sector credit remained positive albeit slower in June recording a 7.5 per cent growth compared with May of this year.
This was led by the lower outturn in commercial banks’lending.

Fiji dollar (currency):

The Fijian dollar (FJD) strengthened against the Australian (1.5%) and the New Zealand dollars
(1.1%) in June, but weakened against the US dollar (-1.7%), the Euro (-0.8%) and the Yen (-0.5%). The average monthly movement of the FJD was reflected in the Nominal Effective Exchange Rate
(NEER)2 index which rose over the month in June (+1.1%) indicating a stronger domestic currency.
The Real Effective Exchange Rate (REER)3 index also increased (+2.6%) as domestic prices were higher relative to trading partners in June.

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