By BENNY SANDEKA
THE national government's unrestrained drawdown of funds in the trust accounts coupled with the demand for cash by the initial development of the multi-million kina Liquefied Natural Gas (LNG), and weakening PNG kina against major trading partners is creating unease in the economic circles of rising inflation.
This means, if the current trends continue throughout this year, there are fears that prices of goods and services may be forced to increase this year and the years to come if the national government does not take heed of the warnings of the Central Bank.
In a public announcement in the newspapers this month, newly appointed Bank of PNG Governor, Loi Bakani said there is a high level of liquidity in the economic system. There is too much money circulating in the economy. The Central Bank will continue its tough monetary stance to absorb this liquidity and bring the inflation to a manageable level. As part of its attempts to manage the economy, the Central Bank has requested the government to transfer its numerous trust accounts to the mother bank. But the government has ignored this request igniting fears of increase in inflation.
Since 2008, the Central Bank has made great strides by reducing inflation from 13.5% that year to 6.7% in the last quarter of 2009. While it is expected to continue a tight monetary policy in the medium term, the Central Bank is calling on the national government to manage the economy prudently by maintaining close coordination between the fiscal and monetary developments of the economy to maintain price stability.
As part of its monetary policy, the Central Bank is expected to continue its Kina Facility Rate (KFR) at 8% throughout the medium term subject to reviews in the first quarter of this year which is due next month.