Philippine Finance Chief Says Oil Shock May Spur April Rate Hike

Frederick Go Photographer: Iya Forbes/Bloomberg Photo by Iya Forbes /Bloomberg

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(Bloomberg) — The Philippine central bank may tighten its monetary policy next month if oil prices continue to rise, according to Finance Secretary Frederick Go.

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“If the price of oil continues to persist at elevated levels, it is most likely that the Monetary Board will consider tightening in the next meeting,” Go said in an interview with Bloomberg Television’s Haslinda Amin on Tuesday. Go is a member of the Bangko Sentral ng Pilipinas’ policymaking board which will hold its next policy meeting on April 23.

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A rate hike would mark an abrupt pivot for the central bank, which had just reduced borrowing costs by 25 basis points in its February meeting, in a bid to support the economy’s recovery.

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The impact of the Middle East conflict on gross domestic product growth “would be less than 10 basis points” if it was a short-term event, said Go, who assumed his post in November. “But if it will persist for more than six months, it will have a more pronounced effect on our GDP growth.”

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Once one of the region’s fastest growing economies, the Philippines has been looking to rebound from a widespread corruption scandal that dragged GDP growth to its slowest pace in 14 years outside the pandemic.

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The peso regained some lost ground against the dollar on Tuesday after touching a record low just under the 60 level on Monday. Bangko Sentral ng Pilipinas Governor Eli Remolona said Monday the monetary authority was intervening in the foreign exchange market in a bid to push down the currency below that psychological level.

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The peso’s recent weakness highlights its vulnerability to rising fuel costs, with the country heavily reliant on imported oil. Oil rose on Tuesday above $100 a barrel as Iran stepped up attacks on energy infrastructure around the Persian Gulf.

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The finance chief said he isn’t worried about the weakness in the Philippine peso “as long as the movements are smooth and not abrupt,” adding that a depreciating currency would support exports. 

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Before the Iran war broke out, Philippine officials and market participants have viewed the 60-per-dollar level as a key threshold. President Ferdinand Marcos Jr. does not want the peso to weaken to 60 against the dollar, according to his press officer in January.

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Remolona earlier this month said that oil at $100 a barrel could force tightening of monetary policy as inflation may breach the central bank’s 2%-4% target range.

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Inflation in the Philippines accelerated to 2.4% in February, the fastest pace in over a year and puts the economy in a delicate position ahead of the expected surge in prices of goods amid the war in Iran.

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The Philippines saw another round of substantial increase in fuel prices this week, with power costs expected to rise by 16% in April. 

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—With assistance from Cecilia Yap, Andreo Calonzo, Anand Menon and Christine Hah.

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