Domestic Q1 interest rates up

Source:
The National - Wednesday, April 6, 2011
DOMESTIC interest rates have increased over the March quarter, despite concerns for high liquidity in the economy.However, the economy continued to grow, boosted by the much publicised LNG project and its spill-over effects on the other sectors, favourable commodity prices and strong investor confidence.The BSP Capital Ltd Research, which provided the March quarter report, said that the continued global economic recovery would further buoy the local economy.It reported that the domestic demand was applying strong pressure on consumer and asset prices, with inflation projected to rise to 8.5% this year, compared to 7.2% last year.The policy measures imposed by the Bank of Papua New Guinea last October have shown some success with further interventions forthcoming.This is the increase of the cash reserve ratio (CRR) from 3% to 4% and the introduction of supervisory liquidity ratio which is under consideration.The kina facility rate (KFR) was maintained at 7% over the last 14 months as monetary aggregates continue to support growth with less impact on underlying inflation.Over the quarter, market interest rate performed as expected with short-term interest rates having increased compared to the preceding quarter, but remained lower than the corresponding period of last year.The government introduced a six-year inscribed stock last January, with a coupon payment of 9% per annum, which had seen aggressive bidding from investors.