Manila Bulletin

BSP awaits fis­cal pol­icy changes

To as­cer­tain im­pact on in­fla­tion

- By LEE C. CHIPONGIAN

Bangko Sen­tral ng Pilip­inas (BSP) Gov­er­nor Amando M. Te­tangco Jr. yes­ter­day said it is pri­mar­ily a wait­ing game both in the US and the Philip­pines as each gov­ern­ment’s fis­cal poli­cies are un­der­go­ing ma­jor shifts.

Te­tangco’s com­ments fol­lowed re­cent in­di­ca­tions from US Federal Re­serve (Fed) chair Janet Yellen that plans to raise in­ter­est rates are still on the table. At the same time, any rates’ hike would have to match the new Trump ad­min­is­tra­tion’s agenda in terms of sus­tain­ing eco­nomic ac­tiv­ity. (Re­lated story on B-6)

The Fed ad­justed its pol­icy stance last De­cem­ber 2016. Its next meet­ing is in March. Te­tangco noted that sim­i­lar to his coun­ter­part in the US, the BSP is also closely mon­i­tor­ing fis­cal pol­icy changes in the Philip­pines, par­tic­u­larly the im­pact of the tax re­forms un­der the Duterte gov­ern­ment.

“The Fed chair also flagged the need to dis­cern the im­pact of the new fis­cal poli­cies of the Trump ad­min­is­tra­tion. 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,” the BSP chief said.

“The Fed has been con­sis­tent in stat­ing that they are poised to raise rates and re­duce ac­com­mo­da­tion,” Te­tangco added. “The tim­ing and mag­ni­tude how­ever are what re­main un­de­ter­mined at this point.”

The BSP’s Mon­e­tary Board will have its next meet­ing on March 23.

“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,” said Te­tangco.

Last Fe­bru­ary 9, dur­ing the cen­tral bank’s first pol­icy meet­ing for the year, it kept its overnight rates un­changed as ex­pected by the mar­ket. The BSP main­tained the overnight bor­row­ing rate at three per­cent and the lend­ing rate at 3.5 per­cent.

The BSP also raised its av­er­age in­fla­tion fore­cast to 3.5 per­cent for this year and 3.1 per­cent in 2018 com­pared to pre­vi­ous es­ti­mates of 3.3 per­cent and three per­cent. The in­fla­tion tar­get band set by the gov­ern­ment is two per­cent to four per­cent for 2017 un­til 2020.

The Mon­e­tary Board said the bal­ance of risks sur­round­ing in­fla­tion outlook con­tin­ues to be weighted to­ward the up­side, given “pos­si­ble ad­just­ments in elec­tric­ity rates as well as the ini­tial im­pact of the gov­ern­ment’s broad fis­cal re­form pro­gram.”

On global risks, the BSP con­tinue to see this as chal­leng­ing par­tic­u­larly with the on­go­ing nor­mal­iza­tion of US pol­icy rates. But, it added, do­mes­tic ac­tiv­ity “is ex­pected to stay firm, sup­ported by buoy­ant house­hold con­sump­tion and pri­vate in­vest­ment, in­creased fis­cal spend­ing and am­ple credit and liq­uid­ity.”

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