Depreciation of the PGK/USD midrate will benefit exporters as they receive more PGK for their goods, whilst importers will see higher prices as their cost-per-kina increases when purchasing goods overseas to bring into PNG.
“A short-run risk of the PGK/USD depreciation is the potential impact on inflation levels for consumers, while the economy may benefit when the exchange rate system operates effectively without the need for interventions” said BSP’s Group CEO, Mr. Mark Robinson.
The reductions in the PGK/USD midrate on 12 separate occasions have been carefully sequenced from 0.2840 in May to 0.2730 in September (total reduction of 110 points or 3.9%).
The progressive PGK/USD depreciation is aimed at rectifying the structural imbalances in the local foreign exchange market. However, given PNG’s reliance on imports for consumer goods and production inputs, the higher import costs will place upward pressure on domestic prices.
“Nonetheless, the upside risks to PNG’s inflation remain very much alive and will continue to be a concern as price pressures on essential consumer items like food remain elevated with ADB inflation projections at 5.0% for 2023,” Mr. Robinson concluded.