BSP to still trim rates despite oil price hike – economist
Credit to Author: MAYVELIN U. CARABALLO, TMT| Date: Tue, 24 Sep 2019 16:25:24 +0000
THE Bangko Sentral ng Pilipinas (BSP) is likely to continue easing its monetary policy settings despite the recent increase in oil prices, according to a Philippine National Bank (PNB) economist.
“We maintain our base case forecast of a quarter-point BSP rate cut later this month despite the recent oil price spike,” PNB chief economist Jun Trinidad said in a report on Tuesday.
Oil prices rose early this week following news of drone attacks on Saudi Aramco’s oil processing plant that knocked off 5 to 6 million barrels of oil a day in global markets.
“Unless inflationary expectations (IE) get spooked by the recent oil price spikes, the cyclical pass-through effects would not be a major cause for stalling monetary accommodation,” Trinidad said.
He also said external and domestic factors could temper the price increase’s inflationary effects.
These include lackluster global demand, less-than-robust pace of domestic demand, subdued oil-price pass-through effects post-global financial crisis, modest share of imports of fuel/lubricants, potential for lower rice prices, and tighter regulatory oversight.
However, Trinidad said the key risk was how the recent oil price increase would affect IE.
“Our empirical results indicated IE has a larger impact on core inflation than the cyclical price effects of imported fuel/lubricants or food,” he said.
That said, Trinidad said the BSP would probably pay close attention to any material change in private sector forecasts of inflation and implications for IE.
A serious effort on the government’s side to pursue the plan to target a rice price retailed at P27 per kilogram against the prevailing P37 to P40/kg would help manage IE amid oil price spikes, he added.
The latest oil price hike would be treated as a “consumption tax,” Trinidad said, because of the absence of a fiscal subsidy, wage adjustment or corresponding reduction in the excise tax on diesel or petroleum.
“Consumers would pay for this tax by cutting back on discretionary expenditures,” he added.