The Bangko Sentral ng Pilipinas (BSP) would likely keep interest rates steady for the rest of the year but the inflationary impact of the tax reform program—expected to become a law soon—was something to watch out for, an economist from JP Morgan Chase said.
The BSP has two more monetary policy meetings this year—the next one on Nov. 9 and the last one on Dec. 14.
“In our view, the BSP will likely stand pat through the second half of 2017 as the current monetary policy settings are accommodative for the upturn in the fixed investment cycle, which appears to have further room to run,” JP Morgan economist Sin Beng Ong said in a research note issued on Sept. 21.
The note was issued right after the central bank kept benchmark overnight borrowing rate unchanged at 3 percent. The BSP also maintained the overnight lending and deposit facility rates at 3.5 percent and 2.5 percent, respectively. The reserve requirement ratios were also kept at current levels.
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The BSP noted that although the inflation outlook remained tilted toward the upside because of the possible impact of the tax reforms, the longer term trajectory remained manageable.
“Furthermore, the ongoing de facto tightening in monetary conditions may leave the BSP on a watchful pause. That being said, the final approval of the tax reform bill by the Senate may result in inflation breaching the upper bound of the BSP’s target range in 2018,” Ong said.
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