- Decision
- Maintain
- Rate change
- 0 bps
- Kina facility rate
- 4%
The Bank of Papua New Guinea’s Monetary Policy Committee on 3 June 2025 left the Kina Facility Rate (KFR) unchanged at 4.0 percent but cut the cash-reserve requirement to 10 percent, judging that a modest easing in core inflation and improving foreign-exchange conditions offset a recent rise in headline inflation driven by domestic price pressures. The KFR has been steady at 4.0 percent since at least the MPC’s inaugural meeting in March 2025, when it was also held. Operationally, the 7-day Central Bank Bill fixed-rate full-allotment auction remains aligned with the KFR, repo and reverse-repo margins stay at 1.5 percent, weekly FX auctions continue, and the crawl-like exchange-rate regime is maintained to correct the kina’s overvaluation; the lower CRR is intended to redistribute liquidity more evenly across banks. Annual headline CPI accelerated to 5.3 percent in the March quarter, while core measures eased but stayed above 3 percent; economic activity is “moderate” with rising employment yet slowing private-sector credit growth, and liquidity overall is ample though unevenly held. On the external side, stronger gold, coffee and cocoa prices and stepped-up FX conversions have cut the FX order backlog to K127 million by end-May, even as gross reserves dipped to USD 3.21 billion (about six months of import cover) amid intervention and debt repayments; the kina has depreciated 2.4 percent against the USD year-to-date under the managed crawl. The Committee cited heightened global trade uncertainty and volatile commodity prices, and pledged to monitor inflation and external developments closely, standing ready to adjust policy settings if necessary.
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.