KFMIC Report: Thursday, 17 October 2013

PNG Macro Environment

During the past month, Bank of Papua New Guinea (BPNG) released their Monetary Policy Statement. BPNG noted that fall non-mining activity will be offset by rise in government spending. Importantly, BPNG noted that “On-going capacity constraints continue to hamper the effective implementation of the development budget”, thus reducing the impact on economic growth of government spending. BPNG predict that 2013 real economic growth will be 5.0% (less than the 6.1% predicted by Department of Treasury). KFM therefore maintain our view that medium term economic growth will be lower than official predictions. BPNG state they will continue their current stance on monetary policy due to the low inflation environment.

BPNG caution however that the fall in the PNG Kina will flow through to increased inflation in 2014 and 2015.

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