BSP awaits fiscal policy changes
To ascertain impact on inflation
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.”