BSP reviews rates amid war outbreak

The Bangko Sentral ng Pilipinas, or BSP, on Wednesday said it is still considering a policy rate hike this year to temper inflation as expectations on higher oil prices sparked by the Israel-Hamas conflict and requests for higher wages have surfaced.

BSP Governor Eli Remolona Jr., in a briefing, said the policy-making Monetary Board is monitoring the war in the Middle East after global media reported possible oil trade disruptions as Iran, a member of the Organization of Petroleum Exporting Countries, has been suspected of helping Hamas, a Palestinian terrorist group, launch the attacks against Israel.

Growth in prices of transport and fuels, along with rice and other agricultural goods, last month signaled supply issues with these commodities, and mainly drove a faster overall inflation to 6.1 percent from 5.3 percent in August and 4.7 percent in July.

"I would not say that we are done with the monetary tightening. I would say it's a serious concern whether the supply shocks side will have a lasting impact," he said.

"Normally they don't have a lasting impact. But once we get into expectations and wages, inflation becomes an issue for us," Remolona continued.

The central bank chief, however, said the Israel-Hamas war had a "minimal" effect on global oil prices so far, but might have "spillover effects on global growth."

Fuel prices monitored
Still, Remolona said the BSP is "watching developments" in this armed conflict. "It's a global phenomenon, by the way, so it's not specific to us," he stressed.

Data from Bloomberg yesterday showed fluctuating prices for WTI Crude by 0.52 percent and Brent crude by 0.60 percent higher to lower levels of at least 0.9 percent. Last Monday, oil prices grew by over 4 percent to $88 per barrel.

Remolona said the BSP will also monitor the effects of the recently approved P1 increase in minimum jeepney fares on overall inflation.

"The September inflation rate was a very significant spike in the headline number. One thing we were worried about was transport fare hikes and that has happened," he said.

If also approved, Remolona said higher wages might also encourage faster inflation due to more consumer demand for goods and services.

A bill requiring an additional P150 to the minimum wage of private-sector workers nationwide was filed in March by Senator Miguel Zubiri to ease the burden of households from elevated headline inflation.

Unlike core inflation, headline inflation includes prices of volatile items like food and fuels.

While price movements of these items are beyond the control of the BSP, Remolona said rate hikes by the central bank help slow inflation by restraining consumer demand for these items.

"The core number went down a little bit, so that is encouraging. For us, the core number reflects the monetary policy but the headline number could affect expectations," he said.

BSP kept its policy rate steady at 6.25 percent in its last meeting after a six-month inflation downtrend from a peak of 8.7 percent in January.

BSP aims to slow back inflation within 2 percent to 4 percent this year.