For PNG’s 2025 September Monetary Policy Statement (MPS), Kina Facility Rate (KFR) was lifted from 4.0% to 5.0%, Cash Reserve Requirement (CRR) lowered from 10% to 9%, and repo margins got widened. Inflation has moderated to 3.6% in June, down from 5.3% in March. Growth is solid, at a projected 4.3% in 2025. These trends matter, but there are even more interesting shifts in the system.

First and most notable is the revival of interbank foreign exchange trading for the first time since 2013. For years, PNG’s FX market was defined by scarcity, rationing and long waits for orders to clear. Improved inflows in recent months have allowed some banks to build surpluses and trade with each other. Outstanding FX orders have halved since February. This is not a small development. A functioning interbank market signals greater confidence and depth. If sustained, it could mark a turning point in the long struggle to normalise FX access for businesses.

Second, there is an important shift in liquidity management. The adoption of a monthly averaging framework for the CRR gives banks more flexibility and improves transparency. The new framework smooths imbalances between banks and ensures liquidity injections, such as June’s K680 million releases circulate more effectively.

Third and finally, work has also begun on an Emergency Liquidity Assistance facility (EMLAF) to provide a structured backstop in case of banking stress. A more fairly valued kina means exporters and importers face fewer distortions, while a formal liquidity backstop makes the financial system less fragile. Both are essential steps towards longer-term goal of greater kina convertibility.

The transmission of monetary policy is still weak. A KFR of 5% has little bearing on commercial interest rates. Banks continue to lend at 7–12% while offering depositors just 0.35% on average. The spread of nearly eight percentage points reflects both poor competition and structural frictions in the banking system. Without more competition and efficiency in banking, monetary policy signals will remain blunted.

In sum, Interbank FX trading is back, and liquidity management is modernising. BPNG is increasingly frank about the limits of its own transmission channels. They are showing a system evolving in ways that could make monetary policy more effective and ultimately more relevant for PNG’s economy.

References;

(1) Cover Photo; https://www.bankpng.gov.pg/sites/default/files/2024-10/Monetary

(2) All the data are taken from;https://www.bankpng.gov.pg/sites/default/files/2025-09/Monetary