The Reserve Bank of Fiji will now implement new policies which will require commercial banks in Fiji to justify to the public and the RBF any increase in its interest rates charged to customers.

The RBF will implement a new market-based monetary policy framework with effect from 17th May 2010.

Under the new framework, the RBF will set an Overnight Policy Rate of OPR to signal the stance of monetary policy.

An increase in the OPR will signal a tightening of monetary policy while a reduction indicates an easing.

The OPR, in turn, will serve as the target rate at which commercial banks will lend to each other in the interbank market.

The OPR will be initially set at 3 percent with effect from 17 May and will be reviewed regularly by the RBF.

An important feature of the new framework is the disclosure of reasons for any widening of commercial banks interest rate spread from the current levels of 4 percent.

In addition, the banks will be required to publish their Base Lending Rates which will serve as a reference rate for the public.
 
Governor Sada Reddy said under the new monetary policy framework, changes in the OPR are expected to be passed to other interest rates in the market, including commercial bank deposit and lending rates.

He said movements in deposit and lending rates are anticipated to influence consumption and investment activity and, therefore, economic conditions in the country.

Reddy said changes in consumption and investment activity will, in turn, impact on prices and the balance of payments.