By MALUM NALU
All agricultural and mineral commodity prices continued to decline in the second quarter of 2012, according to Bank of PNG Governor Loi Bakani, The National reports.He said in the bank's June Quarterly Economic Bulletin released on Tuesday that this included the international price of crude oil to around U$86 per barrel mark reflecting weak global demand, and above-quota production by the Organisation of Petroleum Exporting Countries (OPEC).
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| Loi Bakani |
“This trend is expected to continue for the rest of 2012, depending largely on the recovery of Europe and the growth in China and some advanced economies,” Bakani said.
“Although commodity prices rebounded in the first quarter of 2012, it remained below the end-2011 levels.
“As of September 21, 2012, the price of gold was US$1,736.74 per ounce after a high of US$1,741.63 at the beginning of the year, while the price of crude oil continue to remain volatile, trading at an average of US$86 per barrel.
“Prices of agricultural export commodities are expected to remain low in 2012, compared to 2011.
“If prices of export commodities continue to decline and remain relatively low, together with the strengthening of the kina, it is likely to impact adversely on the export income and government revenue, and lead to further shortfalls in the national budget.”
Given these developments, Bakani warned that if government spending was not curtailed in the second half of 2012, there would be serious consequences on the budget outcome for the year.
“Inflation in advanced economies eased in the second quarter of 2012 and is expected to ease further due to declining commodity prices, fall in global demand and improved supply conditions,” he said.
“On the back of these developments, the IMF projected inflation in the advanced and emerging and developing economies to be at 1.8% and 6.5%, respectively.
“International food prices have declined as indicated by the Food and Agriculture Organisation (FAO) Food Price Index (FFPI), showing a significant drop in the index points to 213 points in August 2012, compared to 231 points in August 2011.
“Crude oil prices declined, although it continued to remain volatile. “
Bakani said the low commodity prices and low inflation levels overseas would have favorable impact on domestic inflation.
He also highlighted:
- Given the low inflation outcome in the June quarter of 2012, the Bank of PNG eased its monetary policy stance by reducing the Kina Facility Rate (KFR) by 100 basis points, from 7.75% to 6.75% in September 2012;
- In the second half of 2012, the upside risks to inflation will arise from the high import prices, strengthening of export commodity prices, depreciation in the kina exchange rate as well as domestic demand pressures associated with the construction of the PNG LNG project, continued private sector investments and increased Government spending;
- The kina exchange rate depreciated against the US dollar, Australian dollar, Japanese yen and the pound sterling, while it appreciated against the euro; and
- The level of gross foreign exchange reserves decreased from K8, 662.4 (US$4,149.8) million at the end of June 2012 to K8, 382.6 (US$4,069.8) million as at end of September 2012.