ANZ Research projects a hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates starting the first quarter of next year on expected uptick in prices of some commodities as a result of the proposed tax reform program.
In a report, the Australia-headquartered financial firm considers the proposed hikes of excise taxes on some commodities to “exacerbate demand pull prices pressures”.
“Robust domestic demand has been entrenched and will get a further boost from the government’s renewed push for infrastructure. Our take is that these adjustments will push 2018 inflation above the upper bound of the central bank’s target range,” it said.
The study noted that average inflation in the last eight years has not gone beyond the upper end of the government’s target range.
As of November this year, rate of price increases averaged at 3.2 percent, within the government’s 2 percent to 4 percent target for this year until 2019.
Last November alone, inflation decelerated to 3.3 percent after hitting its highest so far this year of 3.5 percent, hit last October.
In its eighth and last meeting this year, the BSP’s policy-making Monetary Board (MB) kept the central bank’s key rates and average inflation projections for 2017-19 steady.
To date, the rate of reverse repurchase (RRP) facility is 3 percent, the repurchase (RP) facility is 3.5 percent, and the special deposit account (SDA) facility is 2.5 percent.
Inflation is projected to average 3.2 percent this year, 3.4 percent next year, and 3.2 percent in 2019.
The study said the Board’s decision to keep rates is expected but also pointed out that “while inflation expectations of the private sector were unchanged through 2019, we expect a shift in the coming months on the back of recently released details of the tax reform plan”.
“Considering the intensifying imbalances arising from entrenched robust growth, we stand by our view that policy tightening is called for and expect policy rate hikes to commence in Q1 2018,” it added.