Inflation remained moderate in 2013, with the consumer price index estimated to have risen by 4% at year-end according to estimates given by Asian Development Bank in their flagship publication, The Asian development Bank Outlook 2014.
The Asian Development Bank Outlook 2014 notes that subdued international food and commodity prices and low inflation in key trading partners, notably Australia, contributed to this outcome.
“The relatively high value of the PNG kina helped restrain import prices in 2013 but with the sliding kina recorded in early 2014, inflation may likely increase,” the report states.
Motivated by moderate inflation and slowing growth in the economy, the central bank continued to ease monetary policy during 2013, lowering the target policy rate to 6.25% in March 2013 from a peak of 7.75% in September 2011.
However, persistently high excess liquidity in the commercial banking system keeps policy rates largely disconnected from actual market rates.
Even as aggregate output growth slowed during the year, growth in credit to the private sector accelerated, expanding by 18% in 2013, up from 7% in 2012.
This somewhat counter-intuitive trend reflects the winding back of runaway profit growth in many sectors resulting from investment in the LNG project.
The report highlights that as profit growth has slowed due to falling kina, many firms are looking again to the commercial banking system to fund their investment plans, rather than self-financing them through retained earnings.