August 16, 2018

PNG struggling in Foreign Exchange Market, Kina continues to depreciate

Despite various interventions by O'Neill/Abel government in the foreign exchange market the shortage continue to persist in Papua New Guinea .
This was according to Bank South Pacific’s Economic and Market Insight report for the June quarter released on Wednesday this week.
It noted over the quarter, the PNG kina depreciated against the USD by 1.1% to 0.3040. Against the Australian dollar, the kina appreciated by 3.2 per cent to 0.4144, reflecting broader based weakness for the Australian dollar.
“Year on year, PGK/USD has depreciated 4.3 per cent or 105 points while the PGK/AUD cross is 1.2 per cent or 50 points stronger. Foreign exchange market turnover of K8.8 billion for the second quarter was 26.9 per cent higher than the first quarter.
“Turnover of K3.6 billion in June was the largest month since May-13 when K3.7 billion was recorded towards the end of the LNG construction phase.
“External US dollar financing through the Credit Suisse loan, has allowed Bank of PNG to maintain the level of foreign reserves whilst increasing the level of intervention by 56 per cent year on year.
“However there still exists shortage of foreign exchange liquidity which continues to weigh on PNG’s economic growth,” the report stated.
It stated the Central Bank’s foreign exchange reserve position has not changed much year on year at US$1.7 billion or five months of total import cover, adding that positive increase will only come about with new resource projects.
“Apart from central bank intervention, short-term solutions for the FX shortage will likely come from increased levels of foreign direct investment associated with new or extended energy or mineral projects.”
“This may materialize in an influx of foreign currency into the market in the next six to 12 months.”

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