- Decision
- Raise
- Rate change
- 100 bps
- Kina facility rate
- 5%
The Bank of Papua New Guinea’s Monetary Policy Committee (MPC) raised the Kina Facility Rate (KFR) by 100 bp to 5.0 % and cut the cash-reserve requirement (CRR) to 9.0 %, arguing that a higher policy rate is needed to buttress the kina’s role as the nominal anchor and contain exchange-rate-driven price pressures while a lower CRR will ease the banking system’s uneven liquidity. After keeping the KFR at 4.0 % in both March and June, the September move ends a six-month hold. Operationally, the MPC kept the crawl-like exchange-rate regime, widened the corridor between the KFR and the overnight repo/reverse-repo rates to 200 bp, and maintained weekly FX auctions. Headline inflation slowed to 3.6 % y/y in June from 5.3 % in March, with core measures steady near 3.2 %, and the bank still sees 2025 headline inflation around 3.0 %; GDP growth is projected at about 4.3 % in 2025, supported by mining and robust coffee, cocoa and palm-oil output, though firms cite rising input costs and structural constraints. Gross international reserves improved to roughly USD 3.6 bn (PGK 14.5 bn) by August—above the IMF programme’s NIR floor—as export inflows strengthened, the kina depreciated 3.4 % against the USD and 6.7 % on the TWI since March, and interbank FX trading resumed. Globally, the MPC noted the IMF’s July forecast of 3.0 % growth next year but warned of risks from geopolitical tensions and prospective US tariffs. The Committee said it will maintain the exchange-rate crawl, continue FX interventions and open-market operations, and stands ready to adjust settings further to secure price stability and support the path to greater kina convertibility.
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.