Grim news for economy

By NATHAN WOTI
GRIM news for the national economy as the Kina is expected to continue depreciating up to next year, affecting prices of goods and services, before turning around in 2026, according to a research.
The Australia New Zealand (ANZ) Bank foreign exchange insight research, conducted by international economists Kishti Sen and Tom Kenny, revealed that the value of the Kina had been falling each month since May last year.
It fell an average 20 basis points (bps) per month, ending the year at equivalent to US$0.2683. It was around 5.5 per cent lower than the previous year.
This year, the Kina fell by 12 bps in January, 11bps in February, nine bps in March, and 22bps in April.
It is currently trading at USD0.2627, which is 2.1 per cent lower than its December 2023 value.
(A basis point is a unit of measure used in finance to describe the percentage change in the value or rate of a financial instrument).
Sen said that the Bank of PNG (BPNG) could reset PNG’s exchange rate policy and revert to a situation where depreciation was modest and controlled.
“It is also possible that the BPNG may provide more liquidity to the FX market so that overseas transactions are settled on a timelier basis,” he said.
“So far, the currency depreciation combined with central bank intervention has not brought the market back to a balanced state.
“A significant backlog (of about K1 billion) still exists, along with the frustration of the business community in getting timely access to foreign currency.
“We await the BPNG’s monetary and exchange rate policy for more information on the Board’s strategy.”
In addition, the delay in getting the Papua LNG and the Wafi-Golpu projects off the ground means that the country can experience a longer period of “small falls” for the Kina.
Sen pointed out that the turnaround in the FX market could happen earlier if the BPNG used more of its foreign reserves buffer to provide liquidity to the market, until one of the major projects starts.
The BPNG has nearly doubled its foreign reserves from K7.6 billion (pre-Covid-19 period) to K14. 2 billion in 2023 due a rise in PNG LNG taxes and dividends and drawdowns on foreign currency concessional budget support loans.
The BPNG says it expects inflationary pressures to increase until the year ends due to the continued depreciation of Kina against the US dollar.
Governor Elizabeth Genia said for the remainder of 2024, the Bank expected inflationary pressures to increase, mainly due to the continued depreciation of the Kina against the US Dollar.
Meanwhile, according to the Bank South Pacific Financial Group Limited Treasury and Markets Pulse report, the BPNG and International Monetary Fund were reviewing developments around the Kina’s rate of depreciation.