AN International Monetary Fund (IMF) says that US dollars/kina exchange rate is market-determined and that the market, not Bank of Papua New Guinea, was keeping the rate at its current level.
The report said import payments were not being unduly delayed as reflected in the absence of importer bankruptcies.
It stressed the need to avoid undue exchange rate volatility and high bid or ask spreads and emphasised that past experience has shown that, a faster pace of depreciation may not necessarily have the desired results of stimulating foreign exchange supply and clearing the market, and would be inflationary as PNG is heavily reliant on imports.
The report acknowledged that excess liquidity inhibits the monetary transmission mechanism while noting that, thus far, inflationary pressures had remained contained despite persistent excess liquidity.
The report said suitably tight monetary and fiscal policies were a precondition for the proper functioning of any foreign exchange market.
Bank of Papua New Guinea nevertheless reiterated its request for follow-up IMF TA regarding its participation in the foreign exchange market, and would work on clarifying its focus.
“Bank of Papua New Guinea reiterated its intention to avoid any direct financing of the Government budget deficit,” it said.
“It saw no need to reform the Central Banking Act or to strengthen its balance sheet, given that negative capital was largely attributable to valuation losses on international reserves driven by the rapid appreciation of the kina in 2011-12.
The National / ONE PNG