Forex still a concern, says Central bank
Foreign exchange market is still a concern in the business community.
According to the Central Bank’s (BPNG) quarterly economic bulleting released last week by the Governor Loi Bakani the level of gross foreign exchange reserves at the end of March 2019 was K6,899.7 (US$2,177.2) million, sufficient for 5.5 months of total and 11.8 months of non-mineral import covers.
Mr Bakani gave an update in the bulletin that the capital and financial account recorded a deficit of K6,398.7 million in the March quarter of 2019, compared to K4132 million in the corresponding quarter of 2018.
He said this was due to higher net outflows from direct and other investments reflecting equity withdrawals and build-up in foreign currency account balances of mining, oil and LNG companies covered under the Project Development Agreements.
However, he said although the headline inflation indicated an easing trend since the September quarter of 2018, continued high government expenditure and pressure in the foreign exchange market and their negative impact on the exchange rate and inflation were still a concern.
“The Bank, therefore took a cautious stance by maintained the monthly Kina Facility Rate (KFR) at 6.25 per cent throughout the first quarter of 2019. The dealing margins for the Repurchase Agreement (Repos) were maintained at 100 basis points on both sides of the KFR,” he said.
Meanwhile, World Bank’s resident economist Ilyas Sarsenov at a Port Moresby Chamber of Commerce and Industry business breakfast last week stated that there are some risks the government should be made aware of before going into the market to address this shortage through borrowing.
Mr Sarsenov said the first one is currency depreciation to domestic prices and some of the consumer purchasing power will be impacted negatively and it may lead to some social consequences which may be high and in the case of PNG because the consumer basket is highly dependent on imported goods especially from Australia and China.
Westpac Treasury Jonathan Prince also commented that: “The Kina exchange rate this year has not fallen. The Kina/AUD rate has increased to 43 cents. The current Central Bank reservses are a little bit under US$2 billion. Their FX book is increasing. The government needs to raise USD to replace domestic debt.”
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