BSP rate hike 'a must' in Q2 as oil spikes due to Russia-Ukraine crisis: analyst

ABS-CBN News

Posted at Mar 07 2022 04:31 PM

A motorcycle rider stops for a refill at a gasoline station in Manila on February 26, 2022. Gasoline prices which already increased for 8 straight weeks recently are expected to rise further amid the escalating conflict between Ukraine and Russia. George Calvelo, ABS-CBN News
A motorcycle rider stops for a refill at a gasoline station in Manila on February 26, 2022. Gasoline prices which already increased for 8 straight weeks recently are expected to rise further amid the escalating conflict between Ukraine and Russia. George Calvelo, ABS-CBN News

MANILA - The Bangko Sentral ng Pilipinas must tighten its benchmark interest rate in the second quarter to rein in inflation as global crude oil prices are likely to remain elevated due to the conflict between Russia and Ukraine, an economist said Monday.

The BSP has kept the interest rate at a record low of 2 percent since November 2020 to support economic recovery amid the COVID-19 pandemic. Inflation has been manageable, the central bank said.

But global crude oil prices have continued to surge due to the Russian invasion of Ukraine. Some traders forecast oil to hit $200 per barrel "if things get worse," ING Philippines Senior Economist Nicholas Mapa said Monday.

"BSP is losing its grip on inflation expectations and must move quickly and decisively to reign in concerns and expectations about faster inflation. A rate hike by 2q is now a must," Mapa said.

Brent crude hit $128.06 on Monday, while West Texas Intermediate (WTI) reached $112.51 per barrel in early March. 

This week, gasoline prices will increase by as much as P3 while diesel prices will soar by as much as P5.

"The Philippines will likely be broadsided by the oil price shock with the spike reverberating in both transport and utility costs," Mapa said.

Mapa said the BSP's 4.7 percent worst-case scenario inflation outlook "does not capture the impact of second-round effects and a sharply weaker currency."

"Peso will come under heavy fire in the near term (already is actually) as dollar demand rises to cover pricier oil and other imports," Mapa said.

BSP Governor Benjamin Diokno earlier said the government's inflation target will hold as long as Dubai crude does not exceed $95 per barrel.

Inflation settled at 3 percent in February, the same level as the previous month but Diokno said it could elevate in the second half due to the rising oil prices. 

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