Foreign exchange market turnover in the June quarter rose 28 percent from the March quarter 2023 to K13.9 billion.
This is due to a 58 percent increase in BPNG FX intervention, according to BSP’s June Quarter 2023, Pacific Economic & Market Insights report.
“Excluding BPNG intervention, market turnover rose 12 percent in the June Quarter, but remains flat (unchanged) in 1H-2023 when compared to 1H-2022,” Rohan George, BSP’s Group General Manager for Treasury said.
He highlighted lower commodity prices as the main reason behind no growth in FX turnover. “In 2023 Palm Oil prices are down 40 percent, Oil down 20 percent, and Copper down 10 percent on 1H-2022 averages.
“BPNG’s record K969 million FX intervention in May helped reduce BSP’s outstanding FX orders by 50 percent from the end of the March Quarter, but outstanding FX orders have never-the-less doubled over the course of the year. Despite increased Central Bank intervention, the PNG FX market continues to miss the foreign currency contribution from Porgera.”
The Kina mid-rate fell against the US dollar by 1.8 percent to 0.2790 between May to July and was mostly unchanged against the Australian Dollar at 0.4230 in Q2-2023.
Mr George expects the PNG kina to continue to depreciate against the U.S. dollar by approximately 0.7 percent per month, or 8.4 percent per annum.
“We anticipate continued flat trading conditions, and the focus will shift to the IMF Roadmap to a more effective monetary policy framework and reforms to PNG’s financial system,” Mr George said.
“This will be released at the end of August and most likely involve a gradual move to a freely floating currency, removal of exchange control regulations, and more active Central Bank intervention in the FX and Kina money market.
“Reforms will create greater market risk and volatility in the PNG FX market and customers should commence preparing and budgeting for this,” Mr George stated.