Monetary officials guard against steep rise in fuel prices

THE CENTRAL bank has its guard up against a possible recovery in the price of oil, which may shoot up as fast, if not faster, than it has collapsed in the past six months.

Bangko Sentral ng Pilipinas (BSP) Governor Amando M. Tetangco Jr. said fuel, if it were to remain cheap, would keep overall average consumer prices stable and fall within the official target of 2 to 4 percent. This will allow monetary authorities to keep benchmark interest rates near record lows.

“But prices can reverse, and often very quickly. Markets tend to get ahead of themselves,” Tetangco said on Friday.

Speaking at Security Bank’s Economic Forum in Makati, Tetangco said the crash in fuel prices, while positive for importers like the Philippines, led to heightened uncertainty in markets and forced policymakers to return to the drawing board.

This comes ahead of the BSP Monetary Board’s next policy stance meeting, scheduled for the second week of February.

Since the fourth quarter of last year, fuel prices have been halved as a result of the Organization of the Petroleum Exporting Countries (Opec) decision to maintain production levels despite a supply surplus.

Prior to the crash in fuel prices, Tetangco said several external developments seemed like forgone conclusions. For instance, the US Federal Reserve was widely expected to hike interest rates by the middle of next year.

Today, the US Fed’s next move seems less certain.

Tetangco said growth in oil exporting countries could also slow this year. Cheaper fuel also brings the threat of deflation, or a decline in average consumer prices, to economies in Europe and Japan, which may warrant more accommodative policy measures.

For the Philippines, Tetangco said, cheaper fuel means people can spend more on other items, boosting consumer demand for a wider range of goods. Production costs for businesses may also fall. About a tenth of the national inflation basket is made up of fuel and fuel-related products.

“We continue to watch developments in the market carefully, and how this affects us to see if there’s a need to make adjustments,” Tetangco said.