THE Bangko Sentral ng Pilipinas (BSP) could hold off from immediate monetary tightening despite rising global energy prices, Capital Economics said, though sustained cost pressures could eventually force it to act.
In its latest emerging markets update, the London-based consultancy said the Philippines fell into a group of economies that were unlikely to respond right away to energy price shocks but may raise interest rates if elevated oil prices persist.
“In the Philippines, heavy reliance on imported energy could push the current account deficit deeper into negative territory,” Capital Economics economist Gareth Leather said.
Policymakers, however, will likely prefer to assess whether the surge in energy costs proves temporary.
“They are unlikely to respond immediately, but a prolonged period of high energy prices would trigger tightening,” Leather said.
On Wednesday, the central bank said it was “closely monitoring the impact of the Middle East conflict on Philippine inflation and the economy.”
“Price stability is the BSP’s main mandate. As such, the BSP is assessing the potential impact of higher oil price on the price of fertilizer, transport fares, and inflation in general,” it added.
The BSP’s policymaking Monetary Board delivered another 25 basis points rate cut last month, bringing the benchmark rates down to 4.25 percent.
BSP Governor Eli Remolona Jr. has said a rate hike was possible if oil prices climbed to $100 per barrel and the dollar strengthened sharply.
“Most other central banks will be more reluctant to tighten but those in Indonesia, the Philippines, Mexico and parts of Central Europe could eventually do so if the price spike is sustained,” Leather said.
He added that countries such as Turkey and Pakistan, which face existing inflationary pressures and weak external balances, were more likely to tighten policy aggressively. Turkey has already moved to tighten via its interest rate corridor while Pakistan has signaled readiness to hike if inflation worsens.
Economies like South Korea, Taiwan, and India are expected to keep rates steady given their strong external positions and relatively low inflation, which will allow their central banks to absorb temporary energy shocks without immediate policy changes.
China, Thailand and Brazil, meanwhile, could pursue rate cuts under certain conditions, particularly where growth remains weak or real interest rates are already elevated.
