- Decision
- Maintain
- Rate change
- 0 bps
- Kina facility rate
- 4%
The Bank of Papua New Guinea’s newly constituted Monetary Policy Committee (MPC) held its inaugural meeting on 11 March 2025 and voted—using the Governor’s casting vote—to leave the Kina Facility Rate (KFR) unchanged at 4.0 percent, judging that moderating domestic inflation did not yet warrant a policy-rate move, while simultaneously cutting the cash reserve requirement (CRR) by 100 bp to 11 percent to address uneven liquidity distribution across banks and to shift the policy mix toward market-based instruments. The CRR cut will be offset by higher 28-day Central Bank Bill issuance, and repo and reverse-repo corridor margins stay at 1.5 percent. Annual headline inflation edged up 0.7 percent in Q4 2024 after a 0.9 percent fall in Q3, with core and exclusion-based measures (6.4 percent in Q4) remaining elevated; private-sector credit grew 3.3 percent year on year in December 2024 amid ample but concentrated system liquidity. The balance of payments showed a K238 mn surplus in 2024, while gross reserves stood at USD3.53 bn (about seven months of total import cover) at end-January, and the Kina depreciated 0.47 percent against the USD in the month to 28 February as the bank maintained a controlled crawl. The Committee reaffirmed the need to resume the gradual depreciation of the Kina to address its overvaluation and bolster external competitiveness, pledged vigilance to potential inflationary effects from global conditions and exchange-rate moves, and stressed that the CRR reduction does not constitute a policy easing, with further analysis and communication to follow in future meetings.
Rate evolution
From June 2025 to September 2026, the Bank of Papua New Guinea raised the Kina Facility Rate by 100 basis points from 4.0% to 5.0% after an initial hold, then kept it unchanged at subsequent meetings. The June pause reflected easing underlying inflation, better foreign currency availability and a balanced outlook, although headline inflation had turned up on domestic non-tradable prices, liquidity was uneven across banks and global trade uncertainty was rising. The September 2025 increase was presented as support for the exchange rate’s role as the nominal anchor rather than broad tightening, with headline inflation moderating but core inflation still elevated, the Kina continuing to depreciate, growth prospects strengthening and risks from US tariffs, geopolitics and fiscal vulnerabilities present.
Through March 2026, the Committee judged 5.0% appropriate as inflation remained contained and core pressures trended lower, but stayed cautious over the temporary effect of GST relief, foreign exchange pressures and Middle East-related risks to energy, shipping and imported inflation. In September 2026, it again held the rate at 5.0% after headline inflation rose to 5.3% in the June quarter from 2.2% in March, while trimmed mean inflation was 2.7% and exclusion-based inflation was 3.2%, providing no clear evidence that price pressures were becoming more persistent. The Bank cited higher food and fuel prices, El Nino-related shortages, exchange-rate pass-through and production costs, while noting uneven domestic growth, improving foreign exchange conditions and weak policy transmission, and signalled that a broader and more sustained increase in underlying inflation would warrant reassessment.