Philippine CB Unlikely To Change Policy Stance Soon: Capital Economics

The latest policy statement suggest that the Philippines central bank is likely to leave rates on hold both this year and next, Alex Holmes, an economist at Capital Economics, said.

The Monetary Board of the Bangko Sentral ng Pilipinas, governed by Nestor Espenilla, held the overnight reverse repurchase facility steady at 3.0 percent on September 21.

Headline inflation rebounded over the past couple of months, but remained comfortably within bank’s 2 to 4 percent target range, the economist observed. The acceleration is largely driven by a pickup in fuel inflation.

Core inflation figures suggest that underlying price pressures remain in check.

Looking ahead, one-off factors may cause inflation to rise next year, the economist said.

In its statement, BSP highlighted the expected impact on inflation of the first package of the Comprehensive Tax Reform Plan, which includes the introduction of new consumption taxes, Holmes noted.

However, any impact on inflation is likely to be transitory and policy makers generally don’t adjust monetary policy in response to one-off increases, the economist added.

On the back of movements in the peso and oil prices, the BSP revised up slightly its inflation forecast for this year and kept its forecast for 2018 at 3.2 percent.

The bank is also confident about the outlook for economic growth, noting that the “outlook for domestic economic activity remains firm.”

Capital Economics expects the economy to expand at a decent pace of 6.5 percent annually in this year and 2018.

“Tightening policy in the developed world is unlikely to prompt BSP to act either,” Holmes pointed out.

The start of balance sheet normalization by the US Federal Reserve last week and the ECB’s hints of tapering its asset purchase programme may be a cause for concern, Holmes noted.

Nonetheless, the Philippines has a balanced current account and low foreign currency debt and, besides, as in the rest of Emerging Asia, there is little connection between QE and capital outflows from Filipino assets.

“Overall, there was nothing in today’s statement that would suggest BSP is in any rush to hike rates,” Holmes said.

“Hence, in contrast to the consensus, we expect no change to the policy rate this year or next.”

by RTT Staff Writer

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