The Government, through BPNG, seeks to bring the PGK/USD exchange rate to the ‘market clearing’ rate, where the supply of currency can meet demand without BPNG intervention.
“This will, in theory, allow for the free flow of trade particularly for imports. This is a necessary step by the Government for the market to function efficiently,” Mark Robinson said BSP’s Group CEO, said.
“The PGK/USD midrate was reduced in May (-0.7%), June (-0.7%) and July (-0.4%) from 0.2840 to 0.2790 during this period,” Mr. Robinson said. “These slight reductions are likely to be spread out over multiple years and overlapping with the large FX inflows expected through the various resource projects coming up.”
The resource projects, especially the progress towards reopening of Porgera and the starting up of Papua LNG, are positive indications that have improved market sentiment. The timing of these projects can support current efforts to move to a more market-driven exchange rate system.
“As the Government attempts to correct historical inefficiencies with the exchange rate system, it must ensure that the transition is carefully staged to avoid the risk of exchange rate overshooting due to the pent-up FX demand.” Mr. Robinson concluded.
