A shortage of aggregate demand within the economy as a whole will be eliminated through an increase in demand such as private consumption and investment, and thus price levels will naturally rise. This will further raise inflation expectations toward the price stability target; hence, a virtuous cycle prevails.
The reforms included the financial sector, whereby structural reforms at the Bank of Papua New Guinea were considered necessary to achieve macroeconomic stability over the medium term. A new Central Banking Act (CBA 2000), which became effective on 16 June 2000, enhanced the independence of the Central Bank in the formulation and conduct of Monetary Policy.