Thu, Oct 05, 2017 - Page 11 News List

No policy response to reforms: Espenilla

Reuters, MANILA

The Philippines’ plan to overhaul its tax system would only have a modest inflationary impact and would not need a monetary policy response, Bangko Sentral ng Pilipinas Governor Nestor Espenilla said, brushing off a sharp decline in the Philippine peso in an upbeat message on the economy.

“Any moderate, short-lived inflationary impact of [the tax reform] need not be responded to by monetary policy,” Espenilla yesterday told reporters in an interview for the Global Markets Forum.

The tax reforms are crucial to Philippine President Rodrigo Duterte’s ambitious plans to foster higher, sustainable growth through his US$180 billion “Build, Build, Build” infrastructure campaign.

The tax measures seek to expand the value-added tax base, raise excise taxes on fuel and cars, and slap levies on sugar-sweetened beverages, among other changes. They were approved by Philippine House of Representatives in May, but have yet to be endorsed by the Philippine Senate.

If implemented next year, the tax reforms should only lift consumer prices by less than half a percentage point and the impact would diminish from 2019 onward, Espenilla said.

The Philippines has kept its key interest rates unchanged since raising them by 25 basis points in September 2014 as inflation remained tame, despite robust growth making it one of Asia’s strongest performing economies this year.

Espenilla, who took the helm at the central bank in July, also said any cut in banks’ required reserves would be “measured” and “calculated.”

Moreover, planned reforms to deepen the bond and capital markets should absorb the extra liquidity that would be released with the reduction in the amount of cash banks need to hold, he said.

The central bank has flagged a plan to eventually reduce the reserve requirement ratio, currently at 20 percent and one of the highest in the region, as it reduces its reliance on the tool to manage liquidity.

The capital market reforms, aimed at deepening domestic markets and establishing a reliable yield curve, would be completed over an 18-month period after the planned launch next month, Espenilla said.

The government’s massive infrastructure program has hit the peso, at one point falling to 11-year lows against the US dollar, as capital goods imports have risen sharply.

However, Espenilla was sanguine on the peso, Asia’s worst-performing currency this year, saying that there was no need for foreign-exchange controls.

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