Guard against early inflation: Economist

April 16, 2009 03:03:08 PM

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Fiji’s price regulators can guard against premature inflation from the devaluation of the Fiji dollar by ensuring traders don’t take advantage of the situation, says local economist and Commerce Commission chairman Dr Mahendra Reddy.

Speaking to FijiLive today, Reddy said the immediate impact of devaluation was inflation.

“The downside of devaluation is that it will fuel inflation. Inflation should be kicking in after a month’s time when the new shipment of goods come in. But we can’t afford to have an early inflation so the Commerce Commission and the Prices and Incomes Board should keep a vigilant watch on this,” said Reddy.

He said the devaluation should help ease Fiji’s economy, although there were limitations.

“The purpose is two fold. One is to prevent further capital flight out. Our foreign exchange reserves have been in a precarious position of less than a month of import cover. That’s a very delicate situation so devaluation, always a last option, was to discourage people to take money out. It is also expected to promote exports but as long as export capacity is available. But with our constrained supply situation, we may not realise very much the benefits of devaluation to our exports. However, it should boost tourism because tourists will get more value of their currencies in Fiji dollar,” Reddy said.