The Market Monitor Minding the Nation's Business
By Riza Lozada
Petitions for adjustments in power rates with the Energy Regulatory Commission (ERC) and proposals to raise excise taxes on petroleum products, along with a new round of transport-fare increases, threaten to raise inflation, which may trigger higher bank rates, the Bangko Sentral ng Pilipinas (BSP) said.
The Supreme Court recently held an en banc meeting that tackled the Manila Electric Co. (Meralco) petition seeking a P4.15 per kilowatt-hour power-rate increase that has been pending since the imposition in 2013 of a 60-day temporary restraining order (TRO), with oppositors claiming that such an increase would result in higher prices of goods and services.
During its regular policy meeting last week, rhe BSP’s policy-making Monetary Board (MB) announced that “the inflation environment remains manageable.”
Latest forecasts continue to indicate that average inflation is likely to settle slightly below the 2-percent to 4-percent range and rise toward the midpoint of the target in the next two years.
The MB also reported that its current assessment of the inflation became the basis of its decision to maintain the overnight reverse repurchase (RRP) facility rate at 3 percent. The corresponding interest rates on the overnight lending and deposit facilities were also kept steady.
The reserve requirement, which the BSP demands of banks, were likewise left unchanged. “The overall balance of risks surrounding the inflation outlook appears tilted to the upside, with pending petitions for adjustments in electricity rates along with the proposed adjustment in the excise tax rates of petroleum products and the potential second-round effect on transport fares. Slower global economic activity poses the main downside risk,” the BSP said.
The MB also recognized that, while global economic conditions have remained subdued since the previous meeting, trends in domestic economic activity show sustained firmness, supported by solid private household consumption and investment, buoyant business and consumer sentiment, and adequate credit and domestic liquidity.
Given the fiscal space, higher public spending is also expected to further boost domestic demand, it said. The MB said that, with the stable economic indicators, the current monetary policy settings remain appropriate.
At the same time, it added, increased uncertainty over prospects for growth and monetary policy action in major advanced economies warrants prudence in policy settings.
Going forward, the BSP will continue to monitor emerging price and output conditions to ensure price and financial stability conducive to sustained economic growth.
BSP Governor Amando M. Tetangco Jr. said weaker global economic activity continued to offset these looming tax- and electricity- rate increases.
He also said domestic economic activities “show sustained firmness,” as domestic consumption remained strong, business and consumer sentiment remain positive, and credit and domestic liquidity continued to be adequate.