By Melissa Luz T. Lopez
Senior Reporter

THE BANGKO SENTRAL ng Pilipinas (BSP) kept benchmark borrowing rates steady on Thursday despite expectations that inflation will surge to breach four percent in the months ahead, although authorities discounted its impact as “temporary.”

The Monetary Board kept policy settings steady in its first of eight planned reviews for 2018.

Rates were kept at 3.5% for the overnight lending rate, 3.0% for the overnight reverse repurchase rate and 2.5% for the overnight deposit rate.

“The Monetary Board’s decision is based on its assessment that while latest baseline forecasts show higher inflation outturns for 2018, the inflation path is expected to moderate and settle within the inflation target range… in 2019,” BSP Governor Nestor A. Espenilla, Jr. said in a statement as read by Managing Director Francisco G. Dakila, Jr.

“[T]he Monetary Board saw that inflation expectations continue to be anchored within the inflation target band over the policy horizon. The BSP is watchful against any signs of second-round effects and inflation becoming broader-based.”

The central bank last hiked policy rates in September 2014, although procedural cuts were introduced in June 2016 for the shift to an interest rate corridor scheme designed to better influence market rates and mop up unwanted liquidity.

Inflation clocked four percent in January, which came as a surprise against a 3.5% consensus estimate among economists asked in a BusinessWorld poll. The government attributed the price spikes to the impact of Republic Act No. 10963, or the Tax Reform for Acceleration and Inclusion (TRAIN) law that took effect on Jan. 1.

TRAIN imposed an additional P2.50 excise tax per liter of diesel and P3/liter for kerosene, which came at a time of three-year highs for world crude prices. The new law also either hiked or introduced new taxes on cars, coal, sugar-sweetened drinks and a host of other items that likely drove up prices of other widely used goods and services.

January’s inflatio pace touched the ceiling of the central bank’s 2-4% target band for the entire year, and is the fastest pace recorded since October 2014.

Several analysts have said that inflation will likely trend higher over the coming months as the second-round impacts of TRAIN – such as increases in transport fares and daily minimum wages – creep in.

The central bank also kept reserve requirement ratios (RRR) for big banks steady at 20%. Mr. Dakila said cutting the reserve level remains a “continuing issue” for the Monetary Board, but noted that the focus is now on the policy rate.

Last week, the central bank chief said adjustments to the RRR should not be taken as a change in monetary policy stance, as they merely form part of the government’s financial market reform strategy.

FASTER INFLATION
The BSP raised its inflation forecast, with the monetary authority now expecting price increases to overshoot its 2-4% target for 2018.

Mr. Dakila said the central bank now sees full-year inflation at 4.3%, jumping from the 3.4% expected back in December.

“Now that the TRAIN law has been passed, the baseline assessment now includes impact of tax reform program,” Mr. Dakila said during the press briefing, noting that rising global crude oil prices and the faster-than-expected January inflation rate prompted the BSP to adjust its estimates.

“It should be emphasized that although the inflation number for 2018 has been adjusted upwards, it is a change in inflation due to supply-side factors essentially of a transitory nature,” Mr. Dakila added.

“The forecast shows that by March of next year, we should be back to the inflation target band.”

BSP Deputy Governor Maria Almasara Cyd N. Tuaño-Amador also pointed out that drivers of inflation remain “short-lived” and are expected to “recede” over the year ahead.

Inflation is expected to return within target by 2019 to 3.5%, although still higher than 3.2% previously estimated.

‘SLIGHTLY HAWKISH’
One economist said that the BSP’s statement has turned hawkish as it acknowledged the need to tighten rates due to rising inflation.

“We can call it slightly hawkish. It is the part that possible tweaks in the future will now come from external sources like the mention of global oil prices. But, I think, it is clear that the surge in inflation is simply what it is: a surge,” Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, said when sought for comment.

“Slightly hawkish also because BSP still expects inflation to come back to the official 2-4% inflation target.”

Mr. Asuncion added that he expects one to two rate increases this 2018, possibly by “midyear.”

“If there are signs that inflation is spreading out among all the commodities in the economy, then that will be a factor that will be taken into account in deciding the monetary policy stance. But all adjustments on taxes are essentially supply-side factors,” Mr. Dakila said.

However, Gareth Leather of Capital Economics said he expects the BSP to keep policy moves on hold throughout 2018 as he projects inflation to “drop back” by the start of 2019.

The BSP will hold its next rate-setting meeting on March 22.

DHAKA/MANILA — Bangladesh’s central bank and Rizal Commercial Banking Corp. (RCBC) late on Wednesday said they were prepared to do legal battle over their purported roles in one of the world’s biggest cyber heists two years ago.

Unidentified hackers stole $81 million from Bangladesh Bank’s account at the Federal Reserve Bank of New York in February 2016, using fraudulent orders on the SWIFT payments system.

The money was sent to accounts at Manila-based RCBC and then disappeared into the casino industry in the Philippines.

“Bangladesh Bank will file a lawsuit in a New York court within two to three months in connection with the reserve theft,” central bank deputy governor Abu Hena Mohd. Razee Hassan told Reuters.

“We are in talks with the Federal Reserve Bank and SWIFT to join us as they are also victims.”

For its part, RCBC said the cyber heist was an inside job and Bangladesh Bank was engaging in a cover-up by maligning it.

“Bangladesh Bank should stop making RCBC its scapegoat,” the Philippine bank said in a statement. “RCBC has revealed everything it legally could to the Senate and to the Bangko Sentral ng Pilipinas (BSP).”

RCBC said it “will consider a lawsuit against Bangladesh central bank officials for claiming the bank had a hand in the $81-million cyber heist two years ago.”

“We will not allow them to continue to malign RCBC,” read the statement which was e-mailed to journalists.

“If they sue, RCBC is ready and prepared.”

RCBC shares lost 5.1% to end P46.50 apiece on Thursday, compared to the 0.32% slip of the financials sectoral index of the Philippine Stock Exchange. The bank was one of the listed firms whose share prices suffered some of the biggest losses for the day.

SWIFT spokeswoman Natasha de Teran declined comment, saying SWIFT does not comment on customers.

Reuters reported in December that Bangladesh Bank had asked the New York Fed to join a lawsuit it was considering filing against RCBC seeking damages.

After two years, there is no word on who was responsible and Bangladesh Bank has been able to retrieve only about $15 million, mostly from a Manila-based junket operator.

The BSP fined RCBC a record one billion pesos ($20 million) in 2016 for its failure to prevent the movement of the stolen money through it.

RCBC has blamed rogue employees and Philippine prosecutors have filed money laundering charges against a former RCBC bank manager and four people who owned the bank accounts where the funds were sent, but are not identifiable since the accounts were in fake names. They are the only people to be formally cited anywhere in the world in association with the crime.

RCBC has said it would not pay any compensation to Bangladesh Bank and the Dhaka bank bore responsibility for the theft since it was negligent. — main report by Reuters

THE COUNTRY’s dollar reserves slipped in January as the central bank tapped these funds to smoothen exchange rate swings and as the government settled more debts, the Bangko Sentral ng Pilipinas (BSP) said.

Gross international reserves (GIR) reached $81.206 billion last month to post a slight decline from December’s $81.57 billion and the $81.376 billion recorded in January 2017, the BSP announced late Wednesday.

The figure is the smallest since November’s $80.31-billion tally, but is still bigger than the $80-billion GIR level expected by the central bank for the entire year.

International reserves are composed of gold, central bank assets expressed in foreign currencies, country quotas with the IMF, and foreign currency deposits held by government and state-run firms.

In a statement, BSP Governor Nestor A. Espenilla, Jr. attributed the decline in reserves to its foreign exchange operations, as well as debt payments made by the national government for its foreign obligations.

The central bank sometimes uses reserves to influence in the daily peso-dollar trading by buying or selling more units in order to temper sharp movements in the exchange rate. This forms part with the BSP’s “tactical intervention” to temper sharp currency swings.

A steady stream of investment income from abroad as well as dollar deposits held by the government partially offset declines in other reserve components, the central bank said.

Foreign investments accounted for the bulk of the GIR at $65.363 billion, even as it dipped from $65.815 billion in December and $68.366 billion in January last year.

The central bank’s foreign exchange holdings also slipped to $5.701 billion, coming from the $5.783 billion the previous month. This, however, surged from the $3.772-billion level recorded in January 2017.

BSP officials have said that a weaker peso spelled trading gains for the central bank, as the regulator remains long on dollars.

The peso averaged P50.5087 against the greenback last month, coming from a P50.3947 average in December.

Higher gold prices in the international market also propped up reserves, with the value of the BSP’s holdings rising to $8.501 billion from December’s $8.337 billion and January 2017’s $7.642 billion.

Funds kept with the International Monetary Fund (IMF) increased to $430.5 million in January from $424.4 million the previous month, even as they were down from the $446.3 million logged in January last year.

Special drawing rights — the amount which the Philippines can tap in the IMF’s reserve currency basket — steadied at $1.211 billion.

The IMF uses the US dollar, the Japanese yen, the euro, the British pound and the Chinese yuan in computing each country’s reserve position.

January’s GIR can cover up to 8.2 months worth of import duties, well above the three-month global standard. It can also settle 5.8 times the country’s outstanding external debt falling due in up to a year and up to 4.2 times of such liability when computed on “residual maturity” — or such short-term debt plus principal payments on medium- and long-term loans of public and private sectors falling due within the next 12 months.

The central bank described the latest GIR as a “more than ample liquidity buffer” for the economy.

International debt watchers and multilateral lenders have said that these reserves are a source of credit strength, as it lends resilience to external shocks. — Melissa Luz T. Lopez