MANILA – An economist of ING Bank Manila is eyeing a hike in the Bangko Sentral ng Pilipinas’ (BSP) key rates in the last quarter of 2017 on account of possible overheating of the economy, citing rising inflation and rise in trade deficit among others.
In a research note, ING Bank senior economist Joey Cuyegkeng said a rate tightening in the last month of this year is possible to address risks from the strong growth of loans and of domestic liquidity.
“We continue to expect a pre-emptive tightening at this year’s last BSP-MB (Bangko Sentral ng Pilipinas-Monetary Board) monetary policy meeting (in December),” he said.
The economist noted that growth of domestic liquidity, or M3, registered a faster rise of 15.4 percent last August from the previous month’s 13.5 percent.
“We had anticipated only a marginal acceleration to around 14 percent, within the sweet spot of non-inflationary M3 growth of 10 percent -15 percent,” he said.
During the same month, growth of outstanding loans of commercial banks went up from last July’s 19.7 percent to 20.4 percent, excluding placements in the central bank’s reverse repurchase (RRP) facility.
Cuyegkeng said bank lending’s latest growth is faster than his 18.5 percent growth projection.
“The acceleration we saw may partly reflect some front-loading of purchases ahead of the implementation of the tax reform package that not only includes lower individual income tax and higher excise taxes for fuel and sweetened beverages but also higher excise taxes on automobiles,” he added.
BSP Deputy Governor Diwa Guinigundo told PNA in a phone message, that “it’s easy to observe that M3, loans and inflation are showing consistent uptrends.”
“But that does not establish in a conclusive way there would be overheating in the economy,” he pointed out.
The central bank official explained that for one, “while inflation is rising, our forecasts indicate within target for the next three years.’
The central bank’s policy-making Monetary Board (MB) forecasts inflation to average at 3.2 percent from 2017 to 2019, within the government’s 2-4 percent target range for the period.
“Inflation is also modest and within target,” Guinigundo said.
In the first eight months this year, inflation averaged at 3.1 percent. Last August alone, inflation posted a faster pace of 3.1 percent from month-ago’s 2.8 percent.
Guinigundo also said that “loan growth is also substantial because the economy is growing” but noted that “loans to GDP ratio remains modest by regional standard.”
Thus, he stressed that “we need to be more rigorous in our analysis lest we spook the market with no solid basis.”
“BSP nonetheless continues to monitor the situation for any potential for generating systemic risks,” he added.