Market determines underlying conditions of foreign exchange: Barker

THE kina is not a freely-traded currency and so the exchange rate is not being determined by the market but rather by Bank of PNG,” Institute of National Affairs executive director Paul Barker says.
Barker said nevertheless, it was the market that determined the underlying conditions, with demand for foreign currency to pay for imported goods and services as well as capital transfers continuing to exceed the inflow of foreign currency from export of goods and services and investment.
“This is certainly an odd situation considering the very high current account surplus, where exports of goods and services far exceed imports but at this stage, with many proceeds from those sales allowed to be retained offshore to service debts or under investment agreements, there is a surprisingly limited inflow,” he said.
Barker made the statement in response to Kina Fund Management’s third-quarter report released recently which said BPNG had slightly devalued the kina over the third quarter.
According to the report, BPNG devalued the kina by 0.17 per cent over the third quarter. Through the course of the year, the kina devalued by US$0.003. BPNG also reinstated foreign exchange (FX) rationing as the US$500 million boost to the country’s FX reserves from the sovereign bond was fully utilised.
Barker said in the final quarter of last year, foreign exchange reserves were boosted by improved commodity prices, exports, sovereign bond and major loans.