Business and Economy
BSP rate hike seen to address inflationary pressures
MANILA — ANZ Research expects the adjustment in the Bangko Sentral ng Pilipinas’ (BSP) key rates can address inflationary pressures this year, further boosted by the country’s strong domestic demand.
In a research note dated February 8, ANZ Research said results of a survey among several economists showed an average inflation forecast for this year of 4.34 percent and 3.49 percent for 2019.
These levels are higher than the previous forecasts which were at 3.4 percent and 3.2 percent for 2018 and 2019, respectively, it said.
“This points to an overshoot from the central bank’s 2 to 4 percent inflation target for 2018. If realized, it would be the first overshoot since 2008,” it said.
Last January, the country’s inflation rate rose to 4 percent from 3.3 percent in December 2017.
While Philippine monetary officials maintain they expect the impact of the tax reform program to be transitory but are watchful for second round effects, ANZ Research said price pressures build-up started even before the first package of tax reform was implemented starting January 1.
Second round effects refer to upticks in prices as a result of an increase in excise taxes on fuel, among others, with the implementation of Tax Reform for Acceleration and Inclusion (TRAIN) law.
“The recent surge in core inflation validates a broad rise in consumer prices. We expect the entrenched strength in domestic demand to keep inflation pressures strong, as opposed to the central bank’s stance that the price drivers are temporary,” it said.
Thus, ANZ Research forecasts the central bank’s policy-making Monetary Board (MB) to start hiking key rates by 25 basis points in March.
“For now, we expect cumulative hikes of 50 bps in March and May. However, there is a risk of a longer tightening cycle if inflation continues its ascent,” it added.