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BSP rate hike seen to tame inflation

  • Written by Peoples Journal
  • Published in Business
  • Read: 834

ANZ Research expects the adjustment in the Bangko Sentral key rates can address inflationary
pressures this year, further boosted by the country’s strong domestic demand

In a research note dated February 8, ANZ Research said results of a survey among several
economists showed an average inflation forecast for this year of 4.34 percent and 3.49 percent for
2019.

These levels are higher than the previous forecasts which were at 3.4 percent and 3.2
percent for 2018 and 2019, respectively, it said.
    
“This points to an overshoot from the central bank’s 2 to 4 percent inflation target for
2018. If realized, it would be the first overshoot since 2008,” it said.
    
Last January, the country’s inflation rate rose to 4 percent from 3.3 percent in December
2017.
    
While Philippine monetary officials maintain they expect the impact of the tax reform
program to be transitory but are watchful for second round effects, ANZ Research said price
pressures build-up started even before the first package of tax reform was implemented starting
January 1.
    
Second round effects refer to upticks in prices as a result of an increase in excise taxes
on fuel, among others, with the implementation of Tax Reform for Acceleration and Inclusion (TRAIN)
law.
    
“The recent surge in core inflation validates a broad rise in consumer prices. We expect the
entrenched strength in domestic demand to keep inflation pressures strong, as opposed to the central
bank’s stance that the price drivers are temporary,” it said.
    
Thus, ANZ Research forecasts the central bank’s policy-making Monetary Board (MB) to start
hiking key rates by 25 basis points in March.
    
“For now, we expect cumulative hikes of 50 bps in March and May. However, there is a risk of
a longer tightening cycle if inflation continues its ascent,” it added.