Rate hike to be delayed as inflation remains contained
By Melissa Luz T. Lopez, Senior Reporter
CHANCES of a rate hike from the Bangko Sentral ng Pilipinas (BSP) within the year are diminishing, analysts at a global bank said, on the back of fresh expectations that inflation will remain comfortably within target over the next few months.
“[O]ur call for a tightening in Q4 could be delayed if near-term inflation pressures stay contained,” analysts at ANZ Research said in a market report issued late Thursday, which followed the decision of the central bank to keep key rates steady.
The BSP’s Monetary Board decided to keep benchmark borrowing rates unchanged for the 24th straight meeting, with the central bank pointing out that inflation continues to be “manageable” despite a slight uptick posted in August.
Prices of widely-used goods averaged 3.1% for the first eight months, well within the 2-4% target range set by the central bank. August inflation clocked in at 3.1%, marking a slight pickup from July’s 2.8% but remained at a comfortable level.
The BSP said they expect full-year inflation at 3.2%, which will jump from a 1.8% reading in 2016 but will sit close to the midpoint of the target band. Inflation is also expected to average 3.2% by 2018 and 2019.
For ANZ analysts Eugenia Fabon Victorino and Khoon Goh, the BSP’s estimates are broadly in line with their expectations, with inflation is seen to “remain anchored” to the 2-4% range over the next three years.
“The inflation environment remains manageable even with the uptick in both headline and core numbers in August. Although we agree with the central bank that the risks to future inflation are still to the upside, inflation expectations are unlikely to shift up significantly without greater clarity on the tax reform package,” the bank economists said.
Earlier this week, the Senate Committee on Ways and Means approved their version of the first tax reform package which entails reducing personal income taxes while raising duties on fuel, cars, and sugary drinks. The measure will be up for plenary debates and approval and would have to be reconciled with the version passed by the House of Representatives before it can be endorsed for the President’s signing into law.
ANZ analysts, however, said inflation expectations “will be fluid” until they see the final version of the proposed law.
The Department of Finance wants to implement the new tax rates by Jan. 1, 2018.
For its part, the BSP has said that social safety nets which the government is eyeing to extend to the poorest families, alongside an overall improvement in output and productivity will “temper” the inflationary impact of higher taxes under the measure.
ANZ analysts are among the few who still consider that the BSP will raise rates by 25 basis points this year, while other economists say that the central bank can still keep rates steady even until 2018.
Currently, benchmark borrowing rates range from 2.5-3.5%, with the key policy rate set at 3%.
