Inflation top risk to economy this year, 2 rate hikes likely: analyst


Posted at Jan 18 2018 04:21 PM | Updated as of Jan 18 2018 04:37 PM

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MANILA - Gradually rising inflation poses the biggest risk to the economy, with the central bank likely to raise benchmark rates up to 2 times this year, an analyst said Thursday.

The peso's weakness and the effects of tax reform will lead to a "much faster" inflation in 2018, with the full-year average likely to settle at 3.6 percent, BDO Unibank chief market strategist Jonas Ravelas said.

The Bangko Sentral ng Pilipinas is targeting a 2 to 4 percent range for inflation. It will meet for the first time this year on Feb. 8.

"We’re penciling 2 hikes this year, but most likely, that could happen in the second half," Ravelas told ANC's Market Edge with Cathy Yang.

Should consumer prices rise faster than expected in the first 6 months of the year, Ravelas said the BSP could raise rates as early as the second quarter.

A weak peso increases the spending power of families of overseas Filipinos, who rely on dollar remittances.

Tax reform, on the other hand, will increase the take-home pay of most salaried workers due to lower personal income tax rates. It also raised duties on fuel, cars and sugar-sweetened drinks.

Ravelas said the economy could grow by 6.7 percent in the fourth quarter of 2017 based on market consensus, slower than 6.9 percent in the previous quarter.