BANKERS SEE RATE CUT LESS LIKELY AS MIDEAST TENSION STOKES INFLATION BSP: RATE HIKE POSSIBLE IF OIL HITS $100

BANK economists see the central bank's monetary policy easing coming under a cloud of doubt amid uncertainty over the duration of the Middle East conflict, with the Bangko Sentral ng Pilipinas (BSP) now even raising the possibility of a key rate hike if global crude oil prices breach $100 a barrel.

- RUELLE CASTRO

The economists said the BSP's next policy move now hinges on where the Middle East crisis turns, with rising oil prices, peso weakness and faster inflation narrowing the room for further policy rate cuts and even reviving talk of a hike.

BSP Governor Eli Remolona Jr. openly raised the possibility of a rate hike if oil surges and the dollar keeps strengthening.

On Friday, Remolona told international media the BSP may have to reverse course if oil hits $100 a barrel and the dollar continues to appreciate-a combination that could rekindle inflation pressures. The peso, in turn, slipped back to the P59:$1 level, a mark last seen in January amid broader risk aversion.

Inflation-economic growth balance

Bankers said inflation remains a serious concern, but so is the economic drag from prolonged high fuel costs, leaving the central bank caught between price stability and growth support.

Miguel Chanco, chief emerging Asia economist at Pantheon Macroeconomics, said the renewed oil pressure supports its long-held view that the BSP's February rate cut to 4.25 percent was likely its last. "We've said for the longest time that the cut in February to 4.25 percent would be the BSP's last.

And we're sticking by this base case, especially now that oil price pressures are resurfacing due to the Middle East unrest," Chanco told this paper.

Security Bank economists Angelo Taningco and Chino Genuino share that view, saying the latest developments strengthen their expectation that the BSP will stay on pause for the rest of the year. They said risks to their inflation outlook remain tilted to the upside, including transport fare hikes, sharper minimum wage increases and persistently high oil prices if the Middle East war drags on.

Inflation risk