The National – Monday, July 4th 2011
BANK of PNG Governor Loi Bakani said the increase in global demand for primary commodities has led to high international prices.
Because of this, international prices for the country’s major export commodities had increased, Bakani said in the bank’s economic report for the March quarter.
Gold, copper and oil prices have increased further since March this year, and the prices of non-mineral commodities also remained high.
This would help the trade balance while also contributing to a good flow of revenue for the government’s budget.
On the other hand, increased global demand and the rise in food and oil prices led to an increase in imported inflation for the PNG economy.
Together with high aggregated demand, this led to an increase in domestic inflation.
Annual headline inflation as indicated by the consumer index price (CPI) increased by 9% in the first quarter of this year.
Inflationary pressures, stemming from higher imported inflation and domestic demand, were expected to continue.
As a result, the bank had signalled a tightening stance on its monetary policy by increasing the monthly Kina facility rate (KFR) by 25 basis points to 7.55 last month.
Meanwhile, Bakani said the Bank was still concerned that a significant proportion of trust account funds are still held at the commercial banks despite the directive issued last year by the Finance and Treasury Minister for all new trust accounts to be held at the Central Bank.
This was contributing to the high level of liquidity in the banking system and the high interest cost for the Central Bank in the conduct of monetary policy, he said.
This was because the commercial banks used the funds to invest in treasury bills and central bills and arbitrage on interest rates at a cost to the nation, Bakani said.
Efforts were now being made to hold all new trust accounts at the Central Bank, in line with the treasury minister’s directive, he said.