PH to gain much from oil price slide

The Philippines stands to benefit from declining global oil prices of late, which are seen pulling down inflation in the near term, London-based Capital Economics said.

In this regard, economic managers belonging to the Development Budget Coordination Committee will meet today to review their earlier recommendation to temporarily suspend the scheduled increase in oil excise taxes in 2019, according to Budget Secretary Benjamin Diokno.

Finance Secretary Carlos Dominguez III earlier announced the plan to review the temporary suspension of the scheduled hike in oil excise taxes that was already approved by President Duterte.

“We are currently again reviewing it. This is a totally unexpected development, although it’s a pleasant development … We are reviewing the situation, especially now that prices have gone down to [about] $55 per barrel,” Dominguez told reporters on Monday.

As a net importer of the commodity, “lower oil prices, which will put downward pressure on domestic energy and fuel prices, mean inflation should drop back over the coming months,” Capital Economics said in a Nov. 27 report titled “The Philippines to gain from lower oil prices.”

“This, in turn, will reduce the pressure on the central bank to hike interest rates further. We think this month’s rate hike by the central bank will be the last in the current tightening cycle,” Capital Economics added.

So far this year, the Bangko Sentral ng Pilipinas’ policy-making Monetary Board raised the policy rate by 175 basis points to 4.75 percent.

As food and oil prices soared, headline inflation hit more than nine-year highs and averaged 5.1 percent during the first 10 months, above the government’s target range of 2-4 percent.

“The drop in prices should also lead to a fall in the country’s oil import bill and provide some support to the current account,” Capital Economics said.

“The shift from a current-account surplus to a deficit over the past few years has made the Philippines more vulnerable to shifts in global risk appetite and put downward pressure on the currency,” it noted.

The peso recently fell to 13-year lows due to market concerns on the widening current-account deficit as a result of the also ballooning trade-in-goods deficit.

The latest government data showed that the trade deficit widened to $3.9 billion in September, the biggest monthly deficit so far this year, as imports jumped while exports declined that month. As of end-September, the trade-in-goods deficit stood at $29.9 billion.

Also, “lower oil prices should lead to an increase in real incomes, which should provide a boost to consumption and investment, and help to offset the impact of some of the central bank’s recent interest rate hikes,” according to Capital Economics.