The International Monetary Fund (IMF) on Friday said the Bangko Sentral ng Pilipinas’s (BSP) current monetary-policy settings, 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 told the BusinessMirror that 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.
ING Bank Manila economist Joey Cuyegkeng also said last Friday that the high forecast of the BSP for January may be a precursor to an earlier-than-expected tightening move from the country’s monetary authority.
“The BSP surprised markets with its 3.5-percent to 4-percent January inflation forecast, which is higher than the government’s 3.3-percent forecast. We expect a moderate impact of higher excise taxes from the tax-reform package in the first month of implementation,” he said.
“With such a high January inflation forecast, the market may become worried that inflation will accelerate faster than expected in the coming months. Second-round effects are still to be determined in March to June. Significant second-round effects could cause inflation to breach the target range of 2 percent to 4 percent,” he added.
As such, he said that should inflation, indeed, hit anywhere between 3.5 percent and 4 percent as the BSP forecasted, inflation expectations will rise and may prompt the BSP to tighten as early as the March meeting.
The Philippine Statistics Authority (PSA) is expected to release the January inflation data on Tuesday, February 6. The BSP, meanwhile, is expected to meet for its first monetary-policy setting meeting for 2018 on February 8.
The BSP earlier said that recent inflation developments, including the tax implementation and its second-round effects, will be at the center of their discussions in the upcoming meeting.