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Papua New Guinea

Kina to plunge further

Report hopeful that foreign currency will persevere

BY MATHEW VARI

THE scarcity of foreign currency in the economy is likely to persist well into next year.

And it is predicted that the kina’s current September placing at US$0.30 cents will slide to as low as $0.26 cents in September 2019.

That’s from a latest ANZ Pacific Insight Report: PNG FX Insight, forecasting the trend of the lack of foreign currency.

Papua New Guinea’s foreign exchange market is far from a steady state and will persist well into 2019.

It stated the demand for foreign currency exceeds available supply by some margin.

“The current total reportable backlog of orders (excluding all the orders for profit repatriation yet to be placed) is around K2 billion (US$660 million).

“Where there is a market imbalance, steady state models such as the one presented here will do a poor job in predicting future values. Hence, we base our near-term forecasts on recent trends.

“The PGK/USD has been depreciating since June 2014 because of a shortage of foreign currency. On average, the kina has dropped just under 7 points every month over the last two years.

“We assume a continuation of this trend well into 2019,” the report said. It said, however, that any silver lining for the current currency should take place by late 2019 to early 2020, where the largest impact on the profile of the PNG Kina is likely to come from the next round of expected resource projects.

“The expected commencement of these projects, starting with PNG LNG Expansion (Train 3 Project), will inject US dollars into the country from early 2020 and most probably restore balance in the FX market.

“Accordingly, we expect the flows from the next round of projects to take over as the driver of the currency and push the kina above US$0.35 in H1 2020.”

The report said that in order for easement from downward pressure, the Central Bank would be required to intervene more frequently if the currency is to appreciate against the US dollar.

“That being said, if BPNG intervenes more frequently and brings the market back to balance earlier than anticipated, then the downward pressure applied from a foreign currency shortage will be eliminated. This, in turn, could push the kina higher sooner than forecast.”

The report forecast a slide down from its current September placing at US$0.30 cents to as low as $0.26 in September 2019, followed by growth leading into 2020.

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