Philippines to gain from lower oil prices

MANILA, Philippines — Net oil importers in the region are seen to benefit from lower oil prices, and the Philippines is likely to be among the top gainers, a think tank said.

In a research note, London-based Capital Economics said the recent drop in global oil prices can tame domestic inflation and give the Bangko Sentral ng Pilipinas enough room to leave policy rates unchanged.

The decline in crude prices should also lead to an increase in real incomes and provide a boost to consumption and investment, helping offset the impact of the central bank’s back-to-back rate hikes.

“Lower oil prices, which will put downward pressure on domestic energy and fuel prices, mean inflation should drop back over the coming months,” analysts at Capital Economics said.

“We think this month’s rate hike by the central bank will be the last in the current tightening cycle,” they added.

In a bid to “pre-empt” any threats to its inflation outlook, the BSP at its November meeting “proactively” lifted interest rates for a fifth straight month this year by a modest 25 basis points.

Inflation clocked in at 6.7 percent in September and October, the fastest pace in nearly a decade. Year-to-date, inflation averaged 5.1 percent, well above the government’s target range.

To combat surging prices, the Duterte administration said it would suspend an increase in oil taxes scheduled to be levied in January next year. This is in addition to recent measures announced to lower food prices such as liberalizing the importation of rice.

But global oil prices have been declining since the start of October, prompting the country’s economic managers to “review” the need to defer the increase in oil excise taxes.

According to Capital Economics, the drop in prices should also lead to a fall in the Philippines’ oil import bill, and provide some support to the current account.

“The shift from a current account surplus to a deficit over the past few years has made the Philippines more vulnerable to shifts in global risk appetite and put downward pressure on the currency,” the think tank said. — Ian Nicolas Cigaral