- Decision
- Maintain
- Rate change
- 0 bps
- kina facility rate
- 5%
The Monetary Policy Committee of the Bank of Papua New Guinea left the Kina Facility Rate (KFR) at 5.0 percent at its 4/2025 meeting on 2 December, judging the existing stance adequate to foster a “gradual and orderly” kina depreciation, restrain inflation and sustain growth. The KFR had been steady at 4.0 percent through mid-2025 before the Committee lifted it by 100 bp to 5.0 percent in September. No fresh operational changes were announced beyond the earlier cumulative 300 bp cut in the cash-reserve requirement to 9 percent and the 2 percentage-point corridor around the KFR. The Bank sees headline inflation remaining “moderately elevated”, led by alcoholic beverages, tobacco and transport costs, while core inflation is contained by GST exemptions; economic activity is described as resilient, with strength in agriculture, manufacturing and minerals, improving employment and firmer business confidence, though credit access and liquidity distribution across banks remain uneven. The maintained crawl-like exchange-rate regime is said to be easing the kina’s overvaluation and supporting external competitiveness. Internationally, softer global growth and commodity-price volatility tied to geopolitical tensions pose mixed effects—boosting export receipts but raising import costs. The Committee pledged to watch inflation, exchange-rate moves and liquidity closely to ensure effective policy transmission and safeguard price stability, growth and external balance.
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.