The newly formed Monetary Policy Committee (MPC) of Papua New Guinea has kept the Kina Facility Rate (KFR) unchanged at 4.0%, while lowering the Cash Reserve Requirement (CRR) to 11%, in its inaugural meeting held on March 11.
The decisions were announced in a media release issued by Bank of Papua New Guinea (BPNG) Governor Elizabeth Genia, who chairs the MPC.
The Committee stressed the CRR adjustment should not be seen as an easing of monetary policy, but rather a technical response to prevailing conditions and an effort to address liquidity imbalances within the financial system.
Governor Genia said: “The decision to maintain the KFR at 4.0% while lowering the CRR to 11% reflects an adjustment to previous policy settings in response to current conditions and the uneven distribution of liquidity within the financial system."
The Committee emphasized that the inflationary pressures have eased in recent months, reducing the need for any immediate changes to the policy interest rate.
MPC members remain alert to global economic developments, particularly the risks of imported inflation and the impact of Kina depreciation on domestic price levels, Genia said.
While inflation is currently contained, the MPC signaled that vigilance will be maintained in monitoring any new external threats that could affect price stability in the months ahead.
The Committee’s review of previous tightening measures revealed mixed results. Last year’s increase in the CRR to 12% significantly raised government borrowing costs, with Treasury Bill yields rising sharply, although private sector lending rates remained largely unaffected by the changes, indicating weak transmission of monetary policy into commercial lending markets.
Regardless of the overall adequacy of liquidity in the banking system, the MPC reported that its distribution among commercial banks remains uneven. This concern played a key role in the decision to lower the CRR from 12% to 11%, a move aimed at smoothing liquidity flows and increasing market functions.
Another key focus of the meeting was the importance of continuing the gradual depreciation of the Kina. The MPC reaffirmed the Bank’s commitment to allowing the currency to move towards a more market-determined, equilibrium level to improve external competitiveness and support macroeconomic stability.
The Committee stated this adjustment is necessary to improve external competitiveness and support long-term macroeconomic stability.
Members offered varied perspectives on policy settings as this was the inaugural session of the restructured MPC, established under amendments to the Central Banking Act in December 2024.
The Committee agreed to keep its explanations concise for this initial meeting, with plans to expand the scope of future statements as members align on key policy frameworks and issues.
Governor Genia confirmed that future MPC communications will provide more detailed economic analysis as the Committee’s collective experience deepens.
