PHP: Oil shock, inflation risks and BSP path – ING

ING’s Deepali Bhargava warns that higher Oil prices and supply disruptions are worsening growth, inflation and external balances in the Philippines. The report highlights rising odds of a Bangko Sentral ng Pilipinas (BSP) rate hike as inflation breaches target, but stresses that tighter policy alone is unlikely to change the Philippine Peso’s trajectory against the Dollar in coming months.

Oil shock drives inflation and policy dilemma

"The oil shock has forced the Philippines to declare a national emergency as crude shortages and surging pump prices accentuate the downside risks to growth. We have cut our growth forecast accordingly. While inflation is set to breach the target, raising the odds of a rate hike, monetary tightening alone is unlikely to notably change the peso's trajectory."

"With Brent crude prices up roughly 40% month‑on‑month in March, headline inflation is now likely to exceed the target band even under our base case. This implies that CPI could breach 4% as early as March, raising the probability of a rate hike as early as April."

"Given this weaker growth setting, and assuming the current conflict eases soon, our base case is that the BSP remains on hold in April."

"That said, if oil prices stay above $100/bbl in our longer-war scenario, and with limited signs of de‑escalation in the ongoing conflict, the BSP may be compelled to consider raising rates as soon as April."

"This deterioration heightens depreciation risks for the Philippine peso. The BSP’s recent guidance – that it is not defending any specific exchange‑rate level and that intervention in the FX market remains modest – suggests limited resistance to further currency weakness."

(This article was created with the help of an Artificial Intelligence tool and reviewed by an editor.)