A spokesman for Fiji's military regime has denied reports of extreme volatility in the Pacific nation, saying life there is continuing as normal.

Foreign Minister Murray McCully yesterday said the situation in Fiji was so volatile that it called for a cautious response from New Zealand.

He said he did not want to precipitate any further expulsions of New Zealand High Commission staff whose consular services were needed in the crisis.

Fiji's military-led Government has twice expelled New Zealand's top diplomats in June 2007 and December 2008.

Mr McCully said the volatility of the situation was shown by the arrest of the Reserve Bank Governor Savenaca Narbue, which he called an "act of vandalism".

"When you start moving on the Reserve Bank that indicates a level of volatility we don't normally see," he told the Herald.

However, Fiji's information ministry spokesman Major Neumi Leweni this morning said there was "no new policy" in place regarding the bank.

"It is continuing normal operations, nothing has changed," he told Radio New Zealand.

"Life is normal, there are no detained people," he said.

Asked about media censorship he replied: "That's the law. That's it."

Mr McCully this morning he talked last night with his Australian counterpart Stephen Smith about the situation in Fiji.

He said New Zealand was following a line taken by the Commonwealth and the United Nations that there was a need to send "a clear signal" that Fiji should return to democracy, but sanctions should not punish innocent people.

With no timetable for elections in sight, Fiji's suspension from the Pacific Islands Forum is due to take effect from May 1.

Mr McCully said yesterday he was not considering trade sanctions or preventing New Zealanders from travel.

But there was potential to "fine-tune" the present sanctions against travel to New Zealand.

He pointed to two other sanctions which could have an economic impact on Fiji.

In Beijing, Prime Minister John Key also warned unless Fiji's military regime did a "miraculous turnaround" and committed to elections soon the economic consequences would be dire.

Speaking to journalists in Beijing Mr Key said that recent events in Fiji meant the country was being given a "passport to poverty" by Cmdr Bainimarama.

He said the moves in recent days had taken democratic elections off the table for five years and that was unacceptable.

"The economic implications for Fiji will be dire if they don't have elections in that time I understand their economy is becoming more and more stressed by the day," Mr Key said.

The occupation of the Reserve Bank meant Fiji now also faced even further exchange risks, he said.

"That is one of the serious issues that their economy is facing but not the only one. It is hard to see that there will be any inbound investment in Fiji, we know tourism numbers are falling... Frank Bainimarama is effectively delivering a passport to poverty."

Mr McCully said the Pacific Islands Forum would have to question whether its secretariat remained based in the capital, Suva.

There was an issue over whether the forum, which was dedicated to the rule of law and the operation of democratic Government, "can credibly remain housed in a place where the duly elected Government has been overthrown, the constitution has now been abrogated, the judges sacked and individual and media freedoms curtailed and the president asserts that elections are five years away".

He also indicated that he would be lobbying again to have Fiji troops barred from United Nations missions around the world.

The UN deployed and paid for 223 troops and eight military observers in missions around the world, plus 51 police.

"For the UN to use as peacekeepers troops that have been involved in the overthrow of their own elected Government- overthrow of the rule of law - is unprincipled."

Fiji's former Foreign Minister Kaliopate Tavola yesterday told the Herald New Zealand and Australia should consider tougher trade sanctions to hurt the country.

Mr Tavola, who held the ministerial post in Prime Minister Laisenia Qarase's Government, said other options - including diverting aid from the military Government - clearly hadn't been enough to pressure Commodore Bainimarama.

"They would have to be drastic actions. For Fiji, for a small economy, it cannot take too much of that - it depends on outside trade," he said.