Annual headline inflation stood at -0.8 percent in March, according to the Fiji Bureau of Statistics, however, the recent hike in fuel prices arising from the US-Iran conflict and the closure of the Strait of Hormuz, together with potential higher prices of market items following Tropical Cyclone Vaianu is expected to put upward pressure on inflation in the coming months.
Reserve Bank of Fiji Governor and Board Chairman Ariff Ali says the impact of the US-Iran conflict on the Fiji economy is expected to materialise through a number of channels, including higher fuel prices, an increase in inflation, disruptions to the supply chain and through tourism from our key source markets.
He says the International Monetary Fund has recently revised down its global growth outlook for 2026 to 3.1 percent, noting that growth could weaken further if the war persists and oil prices increase sharply.
Ali says that as a price taker, Fiji remains vulnerable to extended periods of high global fuel prices, which could increase the cost of living, constrain household spending, raise business expenses and delay investment, ultimately dampening growth and, in worse cases, heightening risks of a recession.
He says at the same time volatility in global oil markets could weaken travel sentiment and increase airfare costs, potentially impacting visitor arrivals in the months ahead.
Ali says given these developments, GDP growth for 2026 is downward biased.
Meanwhile, the RBF Board has decided to maintain the Overnight Policy Rate at 0.25 percent following its meeting yesterday.
Ali says the decision reflects their commitment to balancing support for domestic economic activity as well as ensuring financial stability.
He emphasised that they remain focused on achieving its core objectives of maintaining low and stable inflation as
well as safeguarding foreign reserves both of which are currently at comfortable levels.
Ali confirms foreign reserves are adequate at around $3.4 billion, sufficient to cover 4.9 months of retained imports of goods and services and are expected to remain comfortable over the medium term.
He says domestic economic activity continued to be supported by the tourism sector, with visitor arrivals
expanding by a robust 7 percent in the first quarter of the year.
Ali says on the demand side, consumption activity has shown signs of moderation despite support from growing
household incomes, strong remittance inflows, and increased employment and in contrast, investment activity remains positive, consistent with increases in new investment lending and construction-related imports, as well as some
moderation in building material prices.
The Governor says looking ahead, supply side pressures, including rising fuel and freight costs, shortages of skilled labour and a more cautious wait‑and‑see stance by businesses in an election year, present potential constraints to investment activity.
Ali adds the Reserve Bank will continue to closely monitor developments in global oil markets, foreign exchange
flows, reserve adequacy and domestic economic conditions and stands ready to take necessary actions if
required to safeguard macroeconomic stability in line with its mandate.
