Painful months ahead: BPNG

By GYNNIE KERO
Papua New Guinea (PNG) must be prepared to make some painful decision in the coming months, Bank of PNG Governor Elizabeth Genia said yesterday.
A survey conducted by the Bank of Papua New Guinea in February indicated a decline in business confidence which was expected to persist over the coming months with the lingering effects of January’s civil unrest.
Governor Genia made the remarks during the launching of the bank’s March 2024 Monetary Policy Statement during a breakfast in Port Moresby yesterday.
She admitted that it was a very difficult environment for business at the moment.
“The resilience of businesses and of households, in light of the significant economic challenges we are facing, is being tested. Some of these challenges are caused by external factors outside of our control.
“Those factors within our control are the focus of our work at the Bank of Papua New Guinea.
“Over the next six months, we will need to make some tough policy decisions, and in doing so, we will feel some pain, in the short term, for what we are working towards in the longer term.”
On money supply and excess of liquidity in the banking system, Genia said PNG had long struggled with the issue of excess liquidity in the banking system, impeding the effectiveness of the transmission of monetary policy.
In response to this, the BPNG has introduced a Fixed Rate Full Allotment (or FRFA) 7-Day Central Bank Bill auction as a liquidity management instrument to support the monetary policy instrument, or policy rate, the Kina Facility Rate (KFR).
“The FRFA auction’s ability to influence domestic deposit rates has been somewhat effective and the BPNG will look at this more closely in the coming months to try to address the disparity between commercial bank lending rates and deposit rates,” she said.
“It is very important for deposit rates, and lending rates, to converge to reasonable margins and for commercial banks and financial institutions to price their products with some reference to the policy rate as is done in other markets.
“The disparity between lending and deposit rates remains considerable.”
Genia said for the coming six months, inflationary pressures would be to the upside and the BPNG would adopt a tightening bias with its Open Market Operations to support the BPNG’s monetary policy stance.
“The exchange rate will continue lower and the BPNG will closely monitor the inflationary impact of the lower Kina and will take all necessary steps to keep inflation under control,” she said.
“These are challenging times for the economy and the main challenge for the majority of businesses remains the issue of accessing foreign currency.
“2024 will see some improvement in foreign currency inflows and we will continue to support the market in a similar manner to what we have been doing, though it is unlikely we will be able to exceed 2023’s record level of intervention.”