Media Release |
FOR IMMEDIATE RELEASE 02 September 2025
At its September meeting, the Monetary Policy Committee (MPC) increased the Kina Facility Rate (KFR) from 4.0% to 5.0% and lowered the Cash Reserve Requirement (CRR) from 10.0% to 9.0%. The Committee agreed to maintain the crawl-like arrangement in the Kina and to widen the margin between the KFR and BPNG's overnight repo and reverse repo facilities to 2.0%. These measures are intended to reinforce the exchange rate’s role as the nominal anchor for monetary policy while addressing the uneven distribution of liquidity in the banking system through further adjustments to the CRR.
Headline inflation eased to 3.6% in June 2025, down from to 5.3% in March. The core inflation measures were generally stable with the trimmed mean at 3.1% and the exclusion-based measure at 3.3%. The Committee is mindful of the continued depreciation in the exchange rate and its impact on inflation, and the decision to raise the KFR supports the exchange rate as the nominal anchor for price stability.
Global growth is projected at 3.0% in 2025, supported by stronger activity in both advanced and emerging markets, though risks remain due to geopolitical tensions and uncertainty surrounding US tariffs. Domestic growth is projected to be around 4.3% in 2025, driven by the mineral sector and the non-mineral sector - particularly high production of coffee, cocoa and palm oil. Business confidence has improved mainly reflecting the normalisation in the foreign exchange market, however firms continue to face rising input costs and ongoing structural constraints. The commencement of major resource projects in the near term will further boost growth.
The MPC noted that reserves remain above the Net International Reserves (NIR) floor under the IMF program. The foreign exchange (FX) market has improved due to good export FX inflows, normalisation of the FX market, and commencement of interbank FX trading activity. Sustained progress will depend on continued FX inflows and prudent intervention management to support the path toward greater Kina convertibility.
An effective monetary policy transmission mechanism is essential for achieving the Bank’s objective of price stability. While adjustments to the CRR have impacted on liquidity and yields on government securities, the KFR has shown limited influence on lending and deposit rates. Strengthening transmission through a deeper interbank market and increased competition from new entrants will be important for ensuring policy signals transmit more effectively across the financial system and ultimately through into the wider economy.
Ms. Elizabeth Genia
GOVERNOR | on behalf of the MONETARY POLICY COMMITTEE
📄 Download the Monetary Policy Statement - September 2025