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Foreign Exchange Liquidity Is Expected To Rise In 2021



The foreign exchange liquidity in the country is predicted to increase this year. According to the Bank South Pacific, this could happen although the first quarter may be tight.

In the BSP Economic and Market Insight December 2020 quarter publication, group general manager treasury Rohan George said that the foreign exchange inflows were expected to decrease by 13 per cent with the support of the Bank of PNG (forex) intervention and 20 per cent without its forex support, from levels enjoyed in the last quarter of 2020. He predicted that these were all because of the effect of the fire at Ok Tedi, the Porgera mine shutdown, Government businesses and State-owned entities strong end-of-year inflows “are likely to be partially offset by increased forex intervention by the Bank of PNG”.

“The Kina is likely to continue its gradual fall against the US Dollar (10bps/month), while persistent Australian dollar strength will see larger falls in the Kina against the Australian dollar cross-rate,” he said.

The high import demand is also on downward pressure on the Kina exchange rate against the US dollar.

“A look ahead into 2021 is promising,” he said. “For instance, Japan has committed to a K1 billion low-interest loan to help finance PNG’s budget deficit. Further, the Government has provided assurances regarding multi-billion Kina resource projects like the Wafi-Golpu, Papua LNG, Pasca offshore, and the re-opening of the Porgera mine. A successful conclusion of negotiations will provide foreign exchange relief.”

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