The Bank of PNG says to ensure a gradual and stable adjustment of the nominal exchange rate over time, it will continue to intervene to support the crawl-rate and reduce outstanding orders in the foreign exchange (forex) market.
Speaking during the PNG Update in Port Moresby last week, deputy governor Jeffery Yabom said the bank had been using the imbalance in the forex market and the current trend in the exchange rate reflect underlying structural issues in the economy.
In March 2023, the Government entered into a three-year International Monitery Fund (IMF) programme to undertake structural reforms, including on monetary and exchange rate policies.
Under the exchange rate policy reform, one of the priority objectives was to address the persistent foreign currency shortage in the forex market to achieve greater exchange rate flexibility and restore Kina convertibility.
To achieve these objectives, the Central Bank, following the IMF’s recommendation, implemented the crawl-like exchange rate arrangement in January.
This exchange rate arrangement is transitional, to move towards more flexibility consistent with the floating exchange rate regime adopted in 1994.
Under the crawl-like exchange rate arrangement, a number of parameters were agreed to with the IMF including the: (i) Anchor currency, Kina/US dollar exchange rate, to be used in the calculation of the crawl; (ii) Modalities for the calculation of the rate of crawl including exchange rate overvaluation and inflation differentials between PNG and its major trading partners; and, (iii) Width of the crawl band for nominal exchange rate to move is within a two per cent trading margin.
“The bank will use the single currency for simplicity of implementation and move to trade weighted basket of the currencies of major trading partners in the near future,” Yabom said.