Republic of Fiji: Selected Issues

This Selected Issues paper examines the implementation of monetary policy in Fiji, with a focus on liquidity dynamics and their implications for monetary transmission. It documents how persistent surplus liquidity has influenced the transmission of the policy rate and short-term money-market conditions. It also assesses how liquidity conditions have interacted with the existing operational framework and discusses options to strengthen monetary implementation and transmission. Fiji’s monetary policy framework is anchored in a dual mandate that places external stability and price stability at the center of policy implementation. Recent developments point to a sustained surplus-liquidity regime driven by the interaction of external inflows, fiscal cash-management practices, and the absence of sterilization operations in recent years. Monetary policy transmission has been constrained by an operational framework that operates de facto as a floor system in the presence of a large and persistent surplus of liquidity. Strengthening liquidity management is central to restoring an effective monetary policy transmission mechanism by re-establishing the role of short-term interest rates as the marginal price of liquidity.