Bank of PNG eases monetary policy

 THE Bank of PNG eased its monetary policy stance last month in response to low inflation outcomes and to support economic activity, Governor Loi Bakani announced yesterday.

He will talk to a Port Moresby Chamber of Commerce and Industry breakfast today and later in the day in Lae.

Bakani explained in newspaper advertisements in both dailies yesterday that the objective of monetary policy in PNG was to achieve and maintain price stability.

He said this entailed low inflation supported by stable interest and exchange rates.

Bakani said the maintenance of price stability led to: 

n Confidence in the kina exchange rate and management of the economy; 

n A foundation for stable fiscal operations of the government; 

n Certainty for businesses to plan for long-term investment; and

n A stable macroeconomic environment conducive to economic growth.

“PNG continued to experience high economic growth last year,” he said.

“However, the key enablers of this growth are receding and the economic growth this year will slow down as a result.

“In response to low inflation outcomes and to support economic activity, alongside government’s expansionary fiscal policy, the Bank of PNG further eased its monetary policy stance last month.

“The decision aims to encourage private sector lending, primarily in the non-mineral sectors, in light of the winding down of the PNG LNG project construction phase and the associated decline in the spin-off activities.”      

Bakani said while economic activity was high last year, the appreciation of the kina in the first-half of the year, low imported inflation, easing in domestic demand pressures and other factors led to an annual inflation outcome of 1.6%. 

For this, the bank projects headline inflation to be around 5.5%, with the trimmed-mean and exclusion-based inflation measures to be around 4.5 and 5%, respectively.

“Given the increase in demand resulting from the easing monetary stance and the expansionary fiscal policy, the bank will continue to assess the trade-off between higher economic growth and inflationary pressures,” Bakani said. 

“It will therefore maintain its current policy stance for the next six months but may adjust it to ensure that inflation is appropriately managed.”