BSP wary of rising oil prices, prolonged El Niño

MANILA, Philippines — Monetary authorities remain wary of the rising global oil prices as well as the prolonged El Niño episode as economists and analysts continue to expect the Bangko Sentral ng Pilipinas to reverse its tightening cycle and cut interest rates after inflation eased to a 16-month low of three percent in April.

According to BSP Governor Benjamin Diokno, the continued increase in global crude oil prices and the possibility of a prolonged El Niño episode could be a source of upside price pressures over the near term.

Diokno said the weakening global economic environment, on the other hand, could present downside risks to inflation.

“Against these upside and downside risks, the BSP continues to keep a close watch over price developments in the country and shall consider all relevant data at its next monetary policy meeting on May 9 to ensure that the monetary policy stance remains consistent with the BSP’s primary mandate of price stability conducive to a balanced and sustainable growth of the economy,” Diokno said.

Inflation has eased for six straight months to three percent in April after peaking at 6.7 percent in September and October last year, allowing the central bank to take a breather from its tightening episode last year.

“The April 2019 inflation rate of three percent is consistent with the BSP’s expectation that inflation will continue to settle within the target range of two to four percent for both 2019 and 2020,” he said.

BSP Deputy Governor Diwa Guinigundo said the three percent inflation in April continues the disinflationary downtrend since October last year.

“This is very encouraging as it confirms the BSP’s view that year-to-date average inflation will finally settle at around the midpoint of the two to four percent target by around the third quarter of 2019,” Guinigundo said.

Inflation averaged 3.6 percent in the first four months.

“We continue to keep our ears on the ground because of the upside risks to inflation including the prolonged El Nino phenomenon and the elevated oil prices,” Guinigundo said

Economists expect the BSP to slash interest rates by 25 basis points and at the same time resume the reduction of the reserve requirement ratio or level of deposits banks are required to keep with the central bank on May 9 due to easing inflation.

ANZ Research Sanjur Mathur said the central bank is likely to reduce benchmark rates by 25 basis points and by 75 basis points this year.

“We are cognizant of the concern over the recent rise in global crude oil prices, but nonetheless, expect the BSP to take a holistic view by also considering offsetting developments such as easing food prices and core inflation,” Mathur said.