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PNG FX Liquidity Improves Over the past two Quarters BSP insight

Thursday, October 28, 2021

The Foreign Exchange (FX) liquidity has picked up since the second quarter of the year and this has been attributed to strong commodity prices, combined with project specific and donor foreign currency inflows.

BSP Financial Group Limited’s Pacific Economic and Market Insights Q3 2021 Report, stated that the PNG Kina has remained unchanged against the US Dollar for a third consecutive quarter, while FX Reserves at the end of June 2021 show a 7 percent quarter on quarter increase, off the back of favourable inflows, according to Bank of PNG.

BSP PEM Insight also stated that as of 30th June, 2021, the level of gross foreign exchange reserves was US$2.49 billion. Reserve levels have increased 7 percent quarter on quarter to June 2021, with favourable inflows offsetting the Central Bank’s monthly intervention of US$50 million.

While FX liquidity rose 17 percent in the month of September, BSP Group General Manager – Treasury Rohan George said FX turnover over the past 6 months rose by 18%, supported by strong commodity prices, in particular Oil, Copper, Palm Oil, Coffee. “Firmer commodity prices, combined with increased project specific and donor foreign currency inflows offset the lost FX market inflows from the closure of the Porgera Gold Mine.”

“Momentum in FX market turnover is likely to increase into year’s end. Outstanding FX orders have increased from low levels seen in June, and this is expected to continue in October and November with pre -Christmas import orders. We expect large foreign currency inflows in late November and December to satisfy any foreign currency backlog.

“And to manage reduced FX liquidity, businesses should place FX orders (with correct documentation), as soon as possible, ensure orders are cash backed whilst awaiting execution, tax clearance certificates are current and reflect the expected FX order execution time,” George further stated.

It was also reported that the Kina has been stable and unchanged against the US Dollar for the past 11 months; however, the pullback in the AUD/USD, amid Covid-19 related weakness in the Australian economy, strengthened the Kina/AUD, and the Australian dollar is expected to outperform into year’s end as the Australian economy opens up.