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UPDATE 1-PNG kina spikes, traders say new trading band introduced
June 4, 2014 / 3:40 AM / 4 years ago

UPDATE 1-PNG kina spikes, traders say new trading band introduced

* Central bank sets band 75bp either side of $0.4130 - dealers

* Kina jump 18 pct after shedding one-third of value since 2013

* Massive LNG plant transforming small economy (Adds detail, comment, background on LNG project)

SYDNEY, June 4 (Reuters) - The Papua New Guinea kina jumped 18 percent on Wednesday after traders said the South Pacific country had introduced new trading band restrictions following a steep and prolonged fall in the thinly traded currency.

The move will impact a number of major companies operating in the resource-rich but largely undeveloped island nation, including ExxonMobil, which recently shipped its first consignment of liquefied natural gas (LNG) from its $19 billion plant there.

The kina slumped to a low of $0.32 last month, down almost a third from $0.47 last year, sparking speculation among dealers that the central bank would take steps to arrest the slide.

“They were unhappy with the way the kina was sliding and wanted to stop the run,” said Sean Callow, a currency strategist at Westpac.

“Inflation has certainly been an issue there and a loss of confidence in the kina.”

The Bank of Papua New Guinea was not immediately available for comment.

“Authorised Foreign Exchange Dealers in PNG to quote Kina against United States Dollar within a band of 150 basis points; 75 basis points either side of the trading band reference rate currently $0.4130,” one authorised FX dealer said in an email note to Reuters, citing a central bank directive to traders.

The kina last traded at $0.4055, according to Thomson Reuters data, the bottom of the allowed band.

Bank South Pacific, a PNG commercial bank, carried notice of the instructions on its website.

With the construction phase of ExxonMobil’s massive project having come to an end and income from LNG sales yet to flow, the $15 billion economy and the kina have been roiled by the unprecedented investment in the PNG LNG plant.

The PNG economy is forecast to hit a record 21 percent growth rate in 2015 on the back of the project, with the government expecting to bank 1.7 billion to 2.2 billion kina per year until early next decade. (Reporting by Brent Hansen, Lincoln Feast and Cecile Lefort; Editing by Paul Tait & Shri Navaratnam)

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