Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1696589360304.pdf (Vanuatu)
RESERVE BANK OF VANUATU FINANCIAL & ECONOMIC ANALYSIS: June 2014 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 190 June 2014 Exchange Rate and International Developments Global growth continues to strengthen at a moderate pace, but remains uneven, with growth mainly reflecting improved conditions in advanced economies.
Risks to growth remain, including low inflation in advanced economies and an increased financial volatility in emerging market economies.

This is due to the change in the flow of investment funds back to the advance economies as a result of the monetary policy changes to the tapering.

During June the Reserve Bank of Australia left its policy rate unchanged at 2.5 percent, since August 2013.

The easing in monetary policy continues to support interest-sensitive spending and asset values.
The record low interest rates and lower Australian dollar are supporting growth in non-mining sectors.

There have been some signs of growth rebalancing in the economy; activity in the housing market has picked up and there has been an improvement in consumer demand.

Seasonally-adjusted growth in the first quarter of 2014 reached 3.5 percent (yoy).

The seasonally-adjusted unemployment rate increased to 6.0 percent in June, from 5.9 percent in May 2014.
In the Euro area annual inflation is expected to be 0.5 percent in June 2014, constant with May 2014.

This is well below the target communicated by the European Central Bank (ECB) of just below 2 percent.

In their June meeting, the ECB reduced the key refinancing rate from 0.25 percent to 0.15 percent, in an attempt to support growth and prevent inflation falling any further.
The seasonally-adjusted unemployment rate continued to decline to 11.6 percent in May 2014; down from 11.7 percent in the previous month and down from 12.2 percent in May 2013.

Growth is becoming more broad-based, with growth of 0.9 percent (yoy) in the first quarter of 2014.

In the United States the Fed continues to reduce its bond-buying program, cutting asset purchases down to $35 billion in June 2014.
Growth in the March quarter fell to 2.0 percent (yoy) due in part to the cold weather experienced at the beginning of the year.

However, more recent economic indicators, including employment, show signs of strengthening in the economy.

The unemployment rate fell to 6.1 percent in June 2014, down from 6.3 percent in May 2014.
The Federal Open Market Committee decided to keep the target range for the federal funds rate at 0 to 0.25 percent and reiterated that interest rates are likely to remain low for a considerable time.

Annual inflation stood at 2.1 percent in May 2014, compared to 2.0 percent in April 2014.

Over the month the Vatu appreciated against the Euro and the USD, but depreciated against the AUD and the NZD.
Real Sector Developments Total number of visitors rose by 2.6 percent during the first quarter of 2014 compared to March 2013.

This is attributed to both a 1.6 percent increase in arrivals by air and a 2.9 percent increase in arrivals by cruise ships.

The 2.9 percent increase in cruise ship visitors led to a total of 67,627 day visitors compared to 65,678 day visitors in Page 1 of 4 March 2013.
The 1.6 percent increase in air arrivals is caused by the rise in the number of visitors arriving from New Caledonia, other Pacific countries, North America, Japan and other countries.

The number of holiday visitors, which increased by 4.3 percent, accounted for more than 80 percent of the total number of visitors arriving by plane.
Despite the fall in the number of visitors entering to visit friends and attend business meetings, there has been a 7.6 percent increase in number of visitors entering for a stop-over, holidays or other purposes.

Overall, the first quarter of 2014 has seen an increase in the number of visitors entering Vanuatu compare to same period of 2013.
Monetary Developments Chart 1: Money Supply (Percentage Change; Year-on-Year Growth) Money Supply (M2) decreased by 0.1 percent and 7.2 percent during the month and over the year to May 2014, respectively.

The decline during the month reflected a 2.5 percent decrease in net foreign assets (NFA) which outweighs the gradual increase of 0.8 percent in private sector credit.
The fall in NFA resulted mainly from a decrease in commercial banks’ NFA, as a result of the combined effects of a decline of 6.9 percent in their foreign assets and an increase of 1.3 percent in their foreign liabilities.

The Reserve Bank in contrast, recorded net inflows of foreign exchange.

Overall, total NFA declined over the year to May 2014.

The marginal growth in Private Sector Credit in May triggered the annual growth rate to increase by 2.6 percent over the year to May 2014.
Total loans extended by commercial banks to various economic sectors are depicted in Table 4 below.

Loans extended by 1other financial institutions decreased by 1.2 percent and 3.9 percent during May and over the year to May 2014.

Net Claims on Government by the banking system improved in May 2014, recording a decrease of 60.8 percent from the level recorded in April.

This improvement reflected the increase in government deposits held with the Reserve Bank.
However, over the year to May 2014, the Government’s net credit position deteriorated with an increase of 7.3 percent.

Claims on Government by other financial institutions remained unchanged at VT3049.1 million at the end of May 2014.

Open Market Operations (OMO) The Bank conducted three open market operations during the month of June 2014, in which VT192 million worth of RBV notes were issued compared to VT112 million issued during May 2014.
The total subscription received for the issue was VT358 million, compared to VT336 million received throughout May 2014.

The total amount of matured RBV notes for the month was at VT192 million leaving outstanding notes at VT312 million as of end June, compared to VT426 million reported in the previous month.

The interbank rate remained at 5.0 percent while the rediscount window is at 5.5 percent.
Table 2: Amount Allotted (Millions of Vatu) and Yields on RBV Notes (Percent) Term 7 days 14 days 28 days 63 days 91 days Amount Allotted 46 36 36 36 34 Yield End June 2014 Yield End May 2014 1.40 1.50 1.80 1.85 1.90 1.45 1.55 1.80 1.85 1.95 1Other financial institution covers Credit Corporation, Vanuatu Agriculture Bank and the Vanuatu National Provident Fund.

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