The Bangko Sentral ng Pilipinas is closely watching the final form of the comprehensive tax reform program and its potential impact on inflation rate, Governor Amando Tetangco Jr. said Wednesday
Tetangco said the proposed tax reforms could have an impact on inflation and economic growth, in the same way that the Trump administration’s fiscal policies could affect the US economy.
“The Fed [Federal Reserve] has been consistent in stating that they are poised to raise rates and reduce accommodation. The timing and magnitude, however, are what remain undetermined at this point. The Fed chair also flagged the need to discern the impact of the new fiscal policies of the Trump administration,” Tetangco said in a text message to reporters.
“The latter is not unlike our concern in the Philippines”•we are watching out for the final form of the tax reform that will be approved by Congress. We will have to determine the impact of such changes in fiscal policy on the inflation path going forward, keeping in mind the need to distinguish the short-term impact versus the longer-term effects,” Tetangco said.
Fed chair Janet Yellen said Tuesday interest rates might be increased during the upcoming meeting. She said delaying rate increases could leave the Fed’s policymaking committee behind the curve and could result in quicker rate hikes which could trigger a recession.
The Monetary Board, the policy-making body of Bangko Sentral, kept the benchmark interest rates steady in its first meeting this year, owing to the manageable inflation environment and strong economic growth prospects.
Interest rates were kept steady at 3.5 percent for overnight lending, 3 percent for overnight borrowing and 2.5 percent for overnight deposits. The reserve requirement ratios were also maintained.
DBS Bank of Singapore said in a report over the weekend the Bangko Sentral might increase interest rates by 25 basis points next month if the US Federal Reserve went on with its own rate adjustment.
“While previous comments from the central bank officials have suggested that the BSP won’t necessarily respond to any rate adjustment in the US, we reckon that a hike by the US Fed in March will embolden the BSP to kick-off its own policy normalization,” DBS said.
“A 25 bps rate hike still looks likely next month,” the Singaporean bank said.
DBS said while Bangko Sentral’s decision of keeping interest rates unchanged was not surprising, several things caught its attention. Alongside the central bank’s statement on GDP growth momentum and ample liquidity, the board revised upward the inflation forecast this year and next due to higher oil prices and weaker peso.
The target for 2017 was increased to 3.5 percent from 3.3 percent, while the 2018 target was slightly adjusted to 3.1 percent from 3 percent.
Inflation accelerated to a two-year high of 2.7 percent in January from 2.6 percent in December 2016 because of higher increments in clothing and footwear, health and transport. It was the fastest rise in consumer prices, since the 2.7 percent inflation rate in December 2014.
Inflation rate averaged 1.8 percent in 2016, below the target range of 2 percent to 4 percent.