- Decision
- Maintain
- Rate change
- 0 bps
- Policy rate after decision
- 5%
The Bank of Papua New Guinea’s Monetary Policy Committee maintained the Kina Facility Rate (KFR) at 5.0% in September 2026, judging current settings appropriate given uneven sectoral growth and no clear evidence that higher inflation was becoming persistent. The KFR has remained at 5.0% since a 100-basis-point increase in September 2025. The Committee also held the Cash Reserve Requirement at 9.0% and maintained the current pace of Kina adjustment under the crawl-like exchange rate arrangement, reaffirming the exchange rate as the principal inflation anchor amid weak interest-rate transmission. Headline inflation rose to 5.3% in the June quarter, prompting the central bank to raise its 2026 forecast to 5.0%, while projected real GDP growth was upgraded to 3.5% on stronger mineral, construction and services activity. Foreign exchange conditions continued to improve, with a smaller order backlog, net reserve accumulation and adequate reserves. The global outlook softened as higher energy and commodity prices increased imported-inflation risks, while El Nino posed downside risks to domestic activity. The Committee signalled that a broader and more sustained increase in underlying inflation would warrant reassessing policy settings.
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.