BPNG directs FX priority for COVID-19

The Bank of PNG has directed Authorised Foreign Exchange Dealers to give priority to retailers and wholesalers of medical drugs, medical and pharmaceutical companies, particularly the import of products that relate to the COVID-19.

The Bank of PNG will also make foreign currency available directly to the National Department of Health of urgent COVID-19 relocated purchases abroad.

This is among several monetary policy measure responses by the Central Bank to the impact of COVID-19.

Another key measure is the reduction of the Kina Facility Rate (KFR) from 5 percent to 3 percent which will push interest rates down.

Commercial Banks have been directed by the Central Bank to reduce their respective Indicator Lending rates (ILR).

In addition, The Central Bank has reduced the Cash Reserves Requirement (CRR) from 10 percent to 7 percent to allow significant additional liquidity to the banking system. The CCR is the amount of cash a bank must have.

Other monetary policy measures undertaken by the Central Bank include:

  • The Central Bank intends to repurchase or buy-back Government securities, either Treasury Bills or Inscribed Stocks in an open market QE Program to provide liquidity to holders of these instruments. The Program will be made available for investors on request and the bank will allow flexibility for full and partial redemptions. The Program is offered for three months.
  • The margin on Central Bank borrowing and lending to commercial banks will increase by 25 basis points to 100 basis points on both sides of the KFR. The intention is to encourage interbank borrowing and lending among commercial banks. The Bank has requested the cooperation of commercial banks to temporarily waive credit risk limits that may restrict interbank borrowing and lending activity.
  • The Bank will continue to provide the Intra-day liquidity Facility to commercial banks to support the efficient clearing of payments transactions. The Facility will now be accessed on demand based on prevailing limits.
  • New purchases under the TAP Facility will cease throughout the 14 Day lockdown period until further notice. Only repurchases or buy-back will be allowed during this time. The buy-back allows the public to redeem their invested funds prior to maturity for the liquidity needs. For now the TAP facility trading hours are between 8am and 12pm on Monday, Wednesday, Friday, at the bank.

Meanwhile, Prudential requirements to cover the 3-months loan repayment holiday, specifically the Prudential Standards relating to Asset Quality, Capital Adequacy and Loan-Loss Provisioning will be relaxed.  

Also, the Kina Automated Transfers System (KATS) and the Retail Payment Systems (REPS) will continue as normal.

Cedric Patjole