Renewed pressure on global oil prices can be a bigger risk to inflation outlook than the El Niño phenomenon, but such risk is “moderate” for now, an economist from Japanese investment house Nomura said.
Nomura said it would take a “substantial” rise in oil prices to an average of $90 per barrel for the full year to breach the upper end of the 2-4 percent inflation target range of the Bangko Sentral ng Pilipinas (BSP). This is partly because of favorable base effect and mitigating impact of lower food price inflation, it said.
Global oil prices based on WTI benchmark have risen to about $64 a barrel to date from about $50 at the beginning of the year. Oil prices based on Brent crude rose to about $70 a barrel from $60 at the start of the year.
“This implies that these two factors represent relatively moderate upside risks to inflation, which may provide BSP with scope to cut its policy rate in second quarter, ahead of our baseline forecast of third quarter,” Nomura economist Euben Paracuelles said in a research note dated April 10.
Nomura also believes that a near-term cut in the reserve requirement ratio—now at 18 percent—remained clear given softening inflation and tighter liquidity conditions as indicated by interbank rates hovering near the upper end of the BSP’s interest rate corridor.
To date, Nomura said domestic food prices were still declining but energy prices were rising.