MANILA, Philippines—The Bangko Sentral ng Pilipinas has eased concerns over rising oil prices in the global market, saying its estimates showed that inflation for the year can still average within the 3- to 5-percent target even if the Dubai crude hits as much as $160 a barrel.
BSP Governor Amando Tetangco Jr. said inflation would likely remain benign for the rest of the year, citing factors pulling down the overall increase in consumer prices and thus offsetting the impact of the rising cost of oil.
Concerns over inflation were raised amid the oil tension offshore brought about by the standoff between oil-supplier Iran and Western economies. The European Union has decided to ban oil imports from Iran to pressure the latter to give up its nuclear program.
The tension has led to speculations of potentially disrupted oil supply in the months ahead, thereby pushing up consumer prices in countries dependent on oil imports.
The Philippines is an oil-import dependent country, sourcing more than 90 percent of its oil requirements offshore.
Dubai crude price, which is used as a benchmark in setting domestic oil prices, has reached about $120 a barrel in recent days due to the tension offshore. The Philippine government only assumed that oil price would average between $90 and $110 in 2012 when it drafted its various macroeconomic targets, such as on inflation.
“Oil prices have started to go up… but our analysis showed that even inflation will still stay within target even if oil price hits $150 to $160 a barrel,” Tetangco said in a press conference on Tuesday.
He said the inflation target for the year might be at risk of being breached if Dubai crude price exceeded $160 a barrel.
The National Statistics Office reported on Tuesday that the annual inflation rate slowed down to 2.9 percent in February from 3.9 percent in January, thus bringing the average for the first two months of the year to only 3.3 percent.
“We still see inflation for the year averaging below the mid-point [meaning, below 4 percent] of the official inflation target,” Tetangco said.
Nonetheless, Tetangco said the BSP would closely monitor developments, especially oil price movements offshore, to determine whether price pressures would increase in the months ahead and necessitate adjustments in monetary policy.
The BSP’s key policy rates, which influence commercial interest rates, stand at historic lows of 4 and 6 percent for overnight borrowing and lending, respectively. This is after the BSP cut its rates twice this year – in January and earlier this month – for a total of 50 basis points.
Lower interest rates are meant to spur demand for loans, and thus boost consumption, investments and economic growth. However, rate reductions have the tendency to accelerate inflation.
The BSP earlier said that the rate cuts so far this year, while they might cause upward price pressures, would not likely result in the breaching of the inflation target.
Tetango said the BSP would constantly review factors affecting prices and would consider making adjustments in monetary policy should there be risks of the inflation target being exceeded.