Philippine central bank unlikely to tighten monetary policy in near future

The Philippine central bank kept its policy tools on hold today, consistent with market expectations. The Bangko Sentral ng Pilipinas maintained its interest rate corridor at 2.50 percent, 3.00 percent, and 3.50 percent and the reserve requirement ratio at 19 percent.

The central bank projects that inflation will reach 4.5 percent this year, whereas it might average 3 percent next year. The central bank is drawing comfort from the anticipated moderation in inflation in 2019. It is significant to bear in mind that the BSP’s inflation forecasts are based on a survey of private sector economists and are not their own, noted ANZ in a research report.

The BSP repeated that it continues to be vigilant of the second round effect of the tax reforms and sees upside risks to inflation. However, this narrative is similar to that of the earlier statement.

“We forecast that CPI inflation will average 4.1 percent in 2018 in this series, which is above the upper bound of the official target range of 2-4 percent”, stated ANZ.

Core inflation has also seen a progressive rise since December 2017. The sequential momentum also continues to be strong. Both the recent tax reforms and above trend growth have added to this trend, according to ANZ.

“However, as the BSP has not signaled any intention to tighten monetary policy, we will go by it. In this regard, we have recently taken off the 50bps of rate hikes that we previously projected”, added ANZ.

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