The Bangko Sentral ng Pilipinas (BSP) may increase the benchmark interest rates if oil prices continue to rise, Finance Secretary Frederick Go said Tuesday.
The Bangko Sentral ng Pilipinas ‘(BSP) Monetary Board is set to meet on April 23. A rate hike would reverse the bank’s monetary easing cycle, which reduced borrowing costs by 25 basis points in February to support economic recovery.
“If the price of oil continues to persist at elevated levels, it is most likely that the Monetary Board will consider tightening in the next meeting,” Go, a member of the BSP’s Monetary Board, said in a Bloomberg Television interview.
Go said a short-lived conflict in the Middle East would likely shave less than 0.1 percent off GDP growth, but if the hostilities drag on for more than six months, the negative impact on the economy would become more pronounced.
Oil prices rose above $100 a barrel on Tuesday following Iran’s attacks on energy infrastructure in the Persian Gulf.
Economists agreed that the Middle East crisis could force the BSP to reverse its monetary easing cycle and raise interest rates to prevent hyperinflation fueled by surging oil prices.
Citi Research said in a report that headline inflation in the Philippines could spike in March and April as fuel prices rise. The research firm maintained its call for the BSP to pause but warned of a potential shift toward tightening.
“We do reserve one or two 25-bps hikes for a scenario where oil prices stay above $100 for multiple weeks. Such scenario would risk de-anchoring inflation expectations thereby requiring a policy response,” Citi Research said.
The financial research unit incorporated a temporary inflation increase due to the conflict, noting that fuel prices have risen between 13 percent and 38 percent compared to late February.
Headline inflation is expected to touch the 4 percent upper bound of the target range in April before tapering to 3.6 percent by the end of 2026. The 2027 forecast remains in the 3 percent range, it said.
BSP Governor Eli Remolona had also hinted that oil at the $100 level could force a tightening of policy as inflation threatens to breach the bank’s 2 percent to 4 percent target range.
Inflation picked up to 2.4 percent in February, marking the fastest pace in over a year. The country faces further price pressure from a substantial increase in fuel costs this week and a projected 16 percent rise in power costs for April.
The Philippine peso hit an all-time low of 60 per US dollar Monday, and Remolona admitted that the BSP stepped into the market to prevent the currency from crossing that critical level.
Go said the peso’s decline isn’t a major concern, provided the fluctuations remain gradual rather than sudden.
