Kina losing value closely monitored says Prime Minister James Marape
Prime Minister and Treasurer James Marape says the Department of Treasury and Central Bank [BPNG] are closely monitoring the depreciating Kina to ensure it does not trigger extraordinary inflation, with government standing by to intervene in an emergency.
Mr Marape was responding the ANZ Bank foreign exchange insight report on the depreciation of the Kina since May 2023.
“The Kina was artificially pegged in 2014, probably with good intentions to maintain its value. But over time, it became a demotivation for importers to bring back their export earnings as the Kina became more expensive and not on its fair market value,” Mr Marape said.
“We have now unpegged it, and Treasury and Central Bank are observing closely to ensure the depreciation of the Kina does not trigger extraordinary inflation over our 2024 inflation focus.
“If it does, we will intervene.”
The prime minister says the Independent Consumer & Competition Commission [ICCC] and Central Bank are continuously assessing the impact of the depreciating Kina, while Government is working with all exporters in agriculture, fisheries, and forestry as well as mining and petroleum companies to return their export earnings to the country.
“A lower Kina means more for these people when they bring in their dollars. This will assist push the Kina upwards purely on market value.”
Mr Marape says Papua New Guinea’s exports should be boosted; “last year, we made well over K60 billion in exports but the return to our economy was much less. If all our exporters brought back to PNG a major portion of earnings, if not all, then the Kina will appreciate.”
Kina devaluation was planned: Shadow Treasurer James Nomane
The deputy Opposition Leader and shadow Treasurer James Nomane however says, “the devaluation of the Kina was planned – not inevitable. Although the Kina devaluation makes PNG exports cheaper, we have not invested in agriculture to increase production and export volumes that will improve our trade deficit.
“The devaluation will increase the cost of imports and directly increase domestic prices. The continued price increases in basic goods and services, like rice, tinned fish, fuel, water, electricity, etc, will raise inflation and make the cost-of-living crisis worse.”
BPNG forcasts 5% CPI increase this year
Meanwhile, the Bank of Papua New Guinea [BPNG] has forecasted a five percent increase on consumer price index [CPI] for 2024.
BPNG Governor Elizabeth Genia admits inflation will continue, on the back of a weaker PNG Kina against United States Dollar and in the “next 6 months we [BPNG] will have to make some tough policy decisions and doing so we will feel some pain for the long term. “
“[In] 2024, the bank expects inflationary pressure to increase due to depreciation of the Kina against US dollar [and] CPI is expected to increase to 5 percent this year.”
The head of the country’s central bank gave assurance that monetary policy interventions will be made to cushion the increase in prices of goods and services.
“BPNG will closely monitor to keep inflation under control,” Ms Genia said.
CPI increase will up the prices of basic household foods: Bank South Pacific
Mark Robinson, CEO of PNG's biggest retail bank, Bank South Pacific says imported inflation through consumer goods and high-priced fuel imports contributed to consumer price index [CPI] increases across the South Pacific.
“CPI increases are largely attributed to the increased cost of imported goods, including food items, household goods, and fuel,” added Mr. Robinson.
Mr. Robinson further explained that most monetary authorities in the Pacific Markets are responding to inflation concerns by taking a contractionary monetary stance and increasing interest rates.
“This has the intended effect of tightening money supply to control spending and consumption in the economy, thereby cooling down inflation,” he explained, adding, “these measures, however, also have the adverse effect of restricting access to credit and may hinder economic activity if prolonged.”