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Falling oil prices to ease economic pressures in Philippines
MANILA, Philippines — Falling oil prices would help ease economic pressures in the country in the coming months, starting off with inflation and the pressure on the central bank to further raise interest rates, London-based Capital Economics said in a report.
The macroeconomic research firm said lower oil prices would put downward pressure on domestic energy and fuel prices, easing the growth in inflation.
This, in turn, would reduce the pressure on the central bank to raise interest rates further after its Nov. 15 adjustment that saw policy rates rising to 4.75 percent, up by a cumulative 175 basis points since May.
“We think this month’s rate hike by the central bank will be the last in the current tightening cycle,” said Capital Economics in a research note.
The drop in oil prices should also lead to a fall in the country’s import bill, and provide some support to the current account, in turn propping up the peso.
The shift from a current account surplus to a deficit over the past few years has put downward pressure on the local currency.
As lower oil prices ease the growth in consumer prices, Filipinos stand to realize an increase in real income, which should provide a boost to consumption and investment and offset the impact of the recent interest rate hikes.
Capital Economics said while most countries in Emerging Asia would benefit immensely from the rapid decline in oil prices, it is the Philippines that would benefit the most from it.
“Most countries in the region are net oil importers and should gain from the recent drop in oil prices, with the Philippines likely to be among the biggest beneficiaries,” said the firm.
Inflationary pressures remain strong, but is already showing signs of easing. The headline inflation stabilized to a nine-year high of 6.7 percent in October, the same as in September.
Economic managers expect inflation to start pulling back within the quarter and within the two to four percent range next year.
The Philippine Statistics Authority is expected to announce the November 2018 inflation figures next week.
To stabilize inflation, the government has implemented a combination of aggressive monetary policy tightening and non-tariff measures meant to ease the importation of food stuff.
Recently, Congress has approved a bill for the replacement of the quantitative restriction on rice imports with tariffs, liberalizing the importation of rice.
The rice tariffication bill is widely expected to be signed by President Duterte by the end of the year.
Rising inflation in the second semester of the year also led the administration to consider the suspension of the increase in oil taxes scheduled in January 2019.
But the rapid decline in oil prices now has economic managers reviewing if there is a need to postpone the next tranche of fuel tax hike.
Source: https://www.philstar.com/business/2018/11/30/1872822/falling-oil-prices-ease-economic-pressures-philippines#89sybPJE45WtkRyv.99