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Rising oil prices, inflation to cut 2019 growth to 6%

DBS Bank of Singapore said it expects a slower 6-percent gross domestic product growth for the Philippine in 2019 in case oil prices climb to $100 a barrel and inflation rate hits 5.9 percent.

The Singaporean bank said in a report titled “How Will Asia Cope with $100 Oil?” that a scenario of $100 a barrel could boost inflation by 0.4 percentage point, reaching 5.9 percent, beyond the Bangko Sentral ng Pilipinas’ target range of 2 percent to 4 percent.

“Inflation has been high in recent years due to higher commodity prices – way exceeding the BSP upper limit of 4 percent. Oil imports account for more than 10 percent of total imports, hence have a big impact on trade. This year alone [until July], there was an additional $14 billion of imports which were mostly due to oil price increases,” it said.

DBS said it was expecting the current account deficit to reach 3 percent of the gross domestic product, which considered the weaker growth in remittances.

It said given that the Philippines economy was “currently overheating,” the Bangko Sentral would likely raise rate further by at least another 75 basis points to contain inflation.

“If oil goes to $100, there could be another 75-bps upside to the policy cycle. Widening trade deficit and possibly weaker consumption due to lower purchasing power, will adversely impact growth. Under this scenario, GDP growth in 2019 will only reach 6 percent compared to 6.7 percent in our baseline,” DBS said.

Data showed the GDP grew 6 percent in the second quarter, slower than the 6.6-percent expansion in the first quarter.

Latest data from the Philippine Statistics Authority showed that September inflation accelerated to a nine-year high of 6.7 percent from 6.4 percent in August, driven by faster increases in the prices of food and non-alcoholic beverages.

The September inflation was also faster than 3 percent a year ago. This was the fastest in more than nine years, or since it reached 7.2 percent in February 2009. This brought average inflation in the first nine months to 5 percent, over the target range of 2 percent to 4 percent set by the government.

The accelerating inflation compelled the Bangko Sentral to raise the borrowing rate by another 50 basis points to 4.5 percent on Sept. 27 amid the persistent signs of sustained and broadening price pressures.

The 50-bps hike was the fourth upward adjustment this year, bringing the total rate hikes to 150 basis points since May 2018.

The board also raised the inflation forecast for 2018 to 5.2 percent from an earlier estimate of 4.9 percent. The forecast for 2019 was also increased to 4.3 percent from 3.7 percent, while the forecast for 2020 was retained at 3.2 percent.

Last year, inflation settled at 2.9 percent, within the target range of 2 percent to 4 percent for that year.

READ: Another oil price hike in the offing

Topics: oil prices , inflation rate , DBS Bank of Singapore , gross domestic product , GDP
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