PNG central bank holds rates, flags Middle East conflict risks
Elizabeth Genia, Governor of the Bank of Papua New Guinea, presented the March 2026 economic outlook, confirming policy rates were held steady. She highlighted global uncertainty from the Middle East conflict and discussed domestic inflation and growth.
Global headwinds meet domestic resilience
The global economic outlook faces significant uncertainty following the Middle East conflict, which has already driven up global energy prices.
While the IMF projected 2026 global growth at 3.3 percent and inflation at 3.8 percent, persistent conflict could keep global interest rates elevated and slow investment.
For Papua New Guinea, this means higher LNG export earnings but also increased imported inflation and potentially softer demand for non-energy commodities.
Domestically, real GDP growth for 2024 was 3.9 percent, driven by gold and broad-based non-mineral sectors.
The 2025 estimate was revised up to 5.3 percent due to full LNG production.
A more sustainable 3.0 percent growth is projected for 2026, supported by continued mineral output and non-mineral sectors.
Business sentiment shows a cautiously positive outlook, benefiting from improved foreign exchange access and government infrastructure spending, though structural challenges remain.
Policy rates held steady amid inflation pressures
Papua New Guinea's December quarter headline inflation was 4.1 percent, but core measures, excluding seasonal betelnut prices, stood at 1.2 percent.
The 2026 headline inflation forecast is revised upward to 4.0 percent, with core inflation expected to rise to 2.5-3.0 percent, supported by Kina depreciation and easing global oil prices.
The 2025 balance of payments recorded a K2.6 billion surplus, driven by strong gold and LNG exports.
Gross international reserves reached USD 4.1 billion by early February, providing seven months of import cover.
The Monetary Policy Committee maintained the Kina Facility Rate at 5.0 percent and the Cash Reserve Requirement at 9.0 percent.
The current pace of exchange rate adjustment will continue, serving as the nominal anchor for inflation, reflecting a neutral monetary policy stance.
Navigating external shocks and domestic challenges
Papua New Guinea's economy shows resilience, but its import dependency and commodity reliance leave it vulnerable to global shocks.
The central bank's cautious monetary policy, maintaining key rates, pragmatically balances inflation control with growth support.
Addressing the FATF grey listing and managing future sovereign debt repayments are crucial for long-term financial stability.