Consistent with the increase in the KFR, market interest rates increased. The level of broad money supply (M3*) increased by 4.2 percent in 2002, influenced mainly by the growth in net credit to the Government. Reserve money increased significantly in the last two months of the year, due to maturities of Treasury bills by the non-bank private sector.
The tight monetary policy stance is expected to be maintained in the first half of 2003, due largely to the following factors: the high underlying inflation rate expected for the December quarter of 2002, and the first half of 2003; the prudent implementation of the 2003 Budget and uncertainties relating to its external financing; and the continued recovery of the world economy and its effect on the international prices and demand for Papua New Guinea’s exports.