Following the Bank of Papua New Guinea's decision to keep rates steady at 6.25% and to provide a neutral monetary policy guidance over the next six months, we now forecast the central bank to remain on hold through end-2017 to support the economy. Commodity-driven inflationary pressures are likely to moderate over the course of the year, while PNG's external woes appear to be easing.
The increase in number of protests, blockades, and inter-clan rivalry in PNG poses downside risks to its economic growth recovery. Although the country boasts lucrative investment opportunities in the LNG sector, we highlight that the heightened political risks are starting to deter investors, possibly leading to more delays and cancellations of planned investment projects.
Papua New Guinea is likely to see periodic clashes between sections of society and security forces in the lead up to the election scheduled for mid-2017. Despite his growing unpopularity, we believe that the incumbent prime minister still has a moderate chance of winning that poll.
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Thanks, BMI Research