Bangko Sentral ng Pilipinas’s (BSP) first policy-rate adjustment since 2014 could happen this week, based on the apparent market “prepping” being done by the Central Bank through its recent statements, an international bank said.
Singapore-based DBS Bank economist Gundy Cahyadi said the latest pronouncements of BSP Governor Nestor A. Espenilla Jr. signal a potential rate hike.
“Interesting that the BSP governor is finally prepping the markets for a potential rate hike, in a bid to contain the potential second-round inflationary impact from the government’s tax reforms. We had been calling for higher rates in the Philippines since mid-2017, and we may finally see the Central Bank moving this week or in March,” Cahyadi noted.
Just last week, the Central Bank chief said the looming price pressures coming in early-2018, and how these will be contained, will be the center of the Monetary Board’s (MB) discussion on February 8—the first monetary-policy meeting of the BSP for the year.
“These considerations will be at the center of the coming policy discussions. The ability to meet the inflation target comfortably and mitigating the upside risks is very important to the BSP,” Espenilla told reporters.
Following this statement, Cahyadi said the BSP may deliver a 25 basis-point rate hike soon —either this week or in the second MB meeting of the year in end-March. This will effectively bring the BSP’s main policy rate to 3.25 percent, from the current 3 percent.
The next monetary-policy meeting of the BSP after February 8 is on March 22.
In the last MB meeting for 2017, the BSP maintained its inflation forecasts unchanged, particularly at 3.4 percent for 2018 and 3.2 percent for 2019.
Inflation projections, however, are expected to reflect upward adjustments, after the BSP said inflation for January alone is seen to near the ceiling of its 2-percent to 4-percent target range. The BSP said inflation could have opened the year at a rate somewhere between 3.5 percent and 4 percent.
“As far as inflation is concerned, we are also of the view that inflationary pressures are on an upward trend, partly due to higher taxes imposed this year,” Cahyadi said.
“But the main reason we think that policy normalization is imminent is the fact that the domestic economy is robust and it can withstand a gradual adjustment in interest rates,”
he added.
Last Friday the International Monetary Fund (IMF) told the BusinessMirror the BSP’s current monetary-policy stance, which has been in place since 2014, remain appropriate for the recent economic developments.
The global monetary authority, however, warned that the BSP should stand ready to tweak its monetary-policy settings should inflation get out of hand.
In a response to a query, IMF Resident Representative to the Philippines Yongzheng Yang said their current forecasts still yield a within-target inflation for the year.
This is despite the recent forecast of the BSP indicating inflation could fall within 3.5 percent to 4 percent in January, due to the rising price pressures in petroleum rates, as well as the first impact of the recently implemented tax-reform program.
“We still believe that the current monetary-policy stance is appropriate,” the IMF official said.
“Our current forecast is that inflation will stay within 2 percent to 4 percent for the year.
We have noticed the latest BSP update on the inflation outlook and continue to think that the BSP should stand ready to tighten monetary policy should inflation pressures build,” he added.