Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1696585731456.pdf (Vanuatu)
RESERVE BANK OF VANUATU FINANCIAL & ECONOMIC ANALYSIS: June 2018 The news items covered in this publication do not necessarily imply any judgment by the Bank on the accuracy of the information or any endorsement or acceptance of such news Issue 238 June 2018 International Developments1 In its July World Economic Outlook report, the IMF projected global economic growth at 3.9 percent for both 2018 and 2019, in line with its previous forecasts in April.
The report highlighted uneven expansion as some major economies’ growth peaked than others and growth becoming less synchronized.

Risks to outlook also appear to be increasing.

The IMF downgraded its growth forecast of advanced economies in 2018 to 2.4 percent, 0.1 percentage points lower than its April forecast.

2019 forecast remained unchanged at 2.2 percent.

Growth in emerging markets and developing economies is projected to strengthen by 4.9 percent in 2018 before reaching 5.1 percent in 2019.
US economy The US petitioned the WTO to take action on China, EU, Canada, Mexico and Turkey for their retaliations to the US steel & aluminium tariffs2.

June retail sales rose by 0.5 percent over the month, with upward revisions made to May data.

The Empire Manufacturing survey dipped to 22.6 percent (from 25.0 percent), but remains at a reasonable level, suggesting tariffs are not denting business confidence to a significant degree yet3.
US industrial production rebounded in June with an increase of 0.6 percent and offsetting a 0.5 percent decline recorded in the previous month.

Australian economy In Australia, July 1 is always the start of the new financial year.

Following the Fair Work Commission’s 2017-18 Annual Wage Review, a national minimum wage will increase by $24.30 per week.
Consumer confidence is at a four-year4 high, but concerns over cost of living 1 Economic updates for US, Australia, NZ, Euro & developing economies are sourced from “Focus Economics” website.

2 David Lawder; Additional reporting by Anthony Esposito in Mexico City; Editing by Richard Chang and Frances Kerry, Reuters staff expenses remain.

The Sydney's property market slump will last at least another two years as tougher lending standards and buyer concerns weigh on prices, according to Bloomberg.
New Zealand economy In New Zealand, Headline CPI inflation in Quarter two was below market expectations.

This saw annual inflation pick up to 1.5 percent over the year from 1.1 percent in Quarter One.

Tradable prices rose by 0.3 percent over the quarter (0.1 percent, year-on-year), while non-tradable prices rose by 0.4 percent over the quarter (2.5 percent, year-on-year).

Housing-related inflation remains at the fore.


EURO area economy In the Eurozone, the European Central Bank (ECB) also offered clearer forward guidance on the path of interest rates going forward.

The ECB stated that it “expects the key ECB interest rates to remain at their present levels at least through the summer of 2019” if inflation evolves as expected.

Overall, the message was quite cautious and suggests that interest rates will continue to remain extremely accommodative in the short term.
Developing economies In China, trade tensions may cloud China’s growth outlook in H25, but the real risk is that Chinese policymakers’ determination to continue with reforms may be challenged.

According to the ANZ6, China is facing a new policy trilemma: if President Xi Jinping truly prioritises reforms over growth, the outcome will be more 3 ANZ research article, 18 July 2018 4 Chamber of Commerce and Industry WA's survey of consumer confidence 5 Half two fiscal year.
6 ANZ research article, July 2018 Page 1 of 7 corporate defaults or foreign borrowing.

the government, however, does not want higher offshore USD debts, it must sacrifice some growth.

If China’s imports of commodities were softer in the month of June, with all but coal recording month-on-month decline.

Despite last month’s weakness, strong growth so far this year suggests resilient domestic demand.
in the following markets: China (by 84 percent), North America (by 46 percent), Other Countries (by 25 percent), Australia (by 0.5 percent), Other Pacific Countries (by 6 percent), and Japan (by 28 percent).

Visitor arrivals from New Zealand dropped by 7 percent, from Europe by 8 percent and New Caledonia, by 3 percent.
Exchange rate developments At the end of June 2018, VATU appreciated against AUD (1.3), CNY (1.5) and NZD (0.9), however, it depreciated against USD (0.4) and EURO (0.9) Table 1: Exchange Rate of VATU/ Foreign Currency Official Reserves7 Official foreign reserves reached VT 42,727.3 million at the end of May, a slight decline from VT42, 786.2 million recorded in April.

This is sufficient to cover 9.6 months of import cover.

Real sector developments Vanuatu received 36,730 total visitors in April 2018.
Total visitor arrivals dropped by 3 percent over the previous month and rose by 25 percent over the year.

Of the total, 9,193 visitors arrived by air and 27,537 by cruise-ships.

Air arrivals rose by 3 percent over the same month of 2017 and cruise-ship visitors rose by 35 percent.
Holiday visitors, which made up 78 percent of air arrivals, rose by 3 percent over the year, while visitors arriving for other purposes rose by 8 percent and visitors arriving for business, meetings and conferences rose by 17 percent.

In contrast, visitors visiting friends and family dropped by 4 percent, and stopover visitors declined by 71 percent.
The increase over the same month of the previous year was supported by increases 7 One of the key objectives of the RBV is for official reserves to cover at least 4 months of import cover.

It is calculated as Gross foreign reserves less IMF positions.

Monetary Developments Money supply expanded further by 3.2 percent month- on-month, resulting in an annual growth of 15.2 percent over the year to May 2018, relative to 14.9 percent registered over the year to April 2018.
Net foreign assets (NFA) continue to be the main driver of money growth, while domestic credit remains subdued.

Growth in NFA mainly reflected the accumulation of foreign assets of other depository corporations (ODC).

The NFA position of the Reserve Bank of Vanuatu remains virtually unchanged month-on-month.

Overall, the year on year growth in NFA remains strong.
Chart 1: Determinants of Money Supply (yoy% Change) Domestic credit declined by 1.5 percent month-on-month mirroring decline in net claims on the government, which outweighed a slight growth in claims on other sectors.

Similarly, the year-on-year growth in domestic claims fell by 0.4 percent.

Total loans extended by ODCs to various sectors are depicted in table A4.
The central government’s net credit position vis-à-vis the banking system improved further in May 2018 due to the accumulation of government deposits by ODCs.

Page 2 of 7 Furthermore, the position remained favourable over the year to May 2018.

Term Amount Allotted Yield End June.

2018 Yield End May.

2018 There has been no change on claims on the central government by OFIs8 from VT2,850 million at the end of June 2018 compared to May 2018.

Loans extended by OFIs rose by 4.3 percent month-on-month.
The transport sector continues to dominate the market.

300 7 days 14 days 300 28 days 220 63 days 140 91 days 140 1.60 1.65 1.75 1.85 1.90 1.60 1.65 1.75 1.80 1.90 Open Market Operations (OMO) The RBV issued VT2,000 million worth of RBV notes in June, compared to VT1,800 million issued in May 2018.

The total subscriptions received as a result increased to VT4,720 million compared to VT4,080 million in May.

Chart 2 below shows the yield on the 91-days9 RBV notes.
Chart 2: Yield on 91-days RBV Note (Percentage, Month-end Position) Chart 1: Outstanding RBV Notes (Levels, millions of VATU, month-End Data) Table 2: Amount Allotted (Millions of VATU) and Yields on RBV Notes (Percent) A total of VT1,640 million RBV notes matured in June 2018.

The remaining balance of VT1,880 million, is still to be retired, compared to VT1,810 million in May.
8 OFI: Other Financial Institutions cover Credit Corporation; Vanuatu Agriculture Bank; and Vanuatu National Provident Fund 991-days RBV note rate plus a penalty rate of 100 basis points is the RBV policy interest rate.

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