PROSPECTS of monetary policy easing towards yearend — through cuts in benchmark interest rates and banks’ reserve requirement ratio (RRR) — are intact despite worries about oil price spikes after last week’s attack on Saudi Aramco’s processing facilities, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said on Wednesday, supporting views on Tuesday of a senior BSP official and private sector economists that inflation will likely keep to the official 2-4% full-year target.
Asked whether the recent turn of events will affect the BSP’s plan to slash policy rates by 25 basis points more within the year, Mr. Diokno told reporters on the sidelines of an event: “No change. No change. Kasi ang briefing ko dun sa oil prices: as long as hindi siya mage-exceed ng $85 per barrel (In my briefing, I said that as long as oil prices won’t exceed $85 per barrel) we’re still within our inflation target.”
BSP Deputy Governor Francisco G. Dakila, Jr. and analysts on Tuesday said that while inflation risks will depend on the speed by which Aramco will restore its damaged plants’ operations, the overall pace of price increase will likely stay on target.
The attack is estimated to have halved the production of Saudi Arabia, the world’s top oil producer — or by about 5.7 million barrels a day — and cut global output by a fifth.
World oil prices spiked on Monday, with Brent crude logging its biggest intraday jump in nearly 30 years, or since the 1990-1991 Gulf crisis over Iraq’s invasion of Kuwait. On Tuesday and Wednesday, however, oil prices fell on news that supplies to Saudi customers have been restored, Reuters said.
Philippine headline inflation has been easing from 2018’s multi-year highs to clock in at a three-year-low 1.7% in August, which took the year-to-date pace to three percent — the midpoint of the central bank’s 2-4% target for 2019. Inflation last year had logged successive multi-year highs to peak at 6.7% in September and October. It hovered in six-percent territory from August to November, helping to fuel 2018 inflation to a decade-high 5.2%.
The BSP has cut benchmark interest rates this year by a total of 50 bps so far in the face of easing inflation, partially dialling back a cumulative 175 bps increase in 2018 as inflation spiked.
Mr. Diokno on Wednesday added that more RRR cuts, following 200 bps earlier this year and reductions of the same magnitude in 2018, are still in the cards.
“Next cut namin siguro mga 100 basis points (Our next cut will probably be 100 bps),” he told reporters, describing this as “an active issue. So we can discuss it anytime.”
The decision to cut key policy interest rates may be made in the BSP’s sixth, seventh or eighth policy reviews for the year on Sept. 26, Nov. 14 and Dec. 12, respectively, but Mr. Diokno said RRR cuts can be adopted in any of monetary authorities’ weekly meetings. — Luz Wendy T. Noble