DBS Bank of Singapore said Monday it expects the policy-setting Monetary Board of the Bangko Sentral ng Pilipinas to raise the benchmark interest rates in its meeting Thursday to control the accelerating inflation rate.
DBS said in a report inflation in January likely accelerated to 3.4 percent from 3.3 percent in December 2017.
“Comments by the Bangko Sentral ng Pilipinas governor last week may be prepping the market for a potential rate hike in the coming months. We expect the BSP to raise rates by 50 bps this week, if not, at the March policy meeting,” Gundy Cahyadi, economist of the DBS Group research, said.
“CPI inflation is likely to have ticked up to 3.4 percent [YoY] in January. Inflationary pressures remain tilted towards the upside, given that we have yet to see the full impact of the tax reforms,” he said.
The board is set to conduct its first policy meeting in 2018 on Feb. 8.
Bangko Sentral Governor Nestor Espenilla Jr. said last week the first-round effects of the implementation of the Tax Reform for Acceleration and Inclusion law might be transitory but monetary authorities were carefully assessing the next-round effects of the tax reform program on consumer prices.
“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,” the governor said.
Espenilla, however, said the high reserve requirement ratio in the country was “highly burdensome,” and monetary authorities were eyeing to reduce it to a single-digit level in the future.
The reserve requirement ratio is the portion of depositors’ balances that banks are safekeeping with the BSP in the form of cash or other liquid assets. The reserve requirement ratio currently stands at 20 percent, one of the highest RRR in the region.
ING Bank Manila senior economist Joey Cuyegkeng also said inflation in January likely accelerated to 3.4 percent from 3.3 percent in December, a trend that if sustained going forward could compel the Bangko Sentral to raise interest rates as early as March.
Bangko Sentral earlier said January inflation could settle within the 3.5 percent to 4 percent range for the month.
“The increase in the prices of domestic petroleum product on account of higher global crude oil prices along with higher food prices due to weather-related disturbances could contribute to the rise in inflation for January 2018,” it said. Julito G. Rada
Bangko Sentral also said higher excise taxes on fuel and sugar-sweetened beverages with the implementation of the Train law would lead to additional upward price pressures. The law took effect in January.
“The increase in prices could be partly offset by lower electricity rates in Meralco-serviced areas for the month,” it said.
Inflation averaged 3.2 percent in 2017.
The inter-agency Development Budget Coordination Committee kept the 2018 inflation target within a range of 2 percent to 4 percent.