BSP's easing path clouded by fuel surge

A dovish Bangko Sentral ng Pilipinas (BSP) may be constrained by skyrocketing global oil prices, which would further weaken the peso and could force a pause from further interest rate cuts, foreign banks said.

- BY BEN ARNOLD DE VERA

In a June 23 report, MUFG Global Markets Research said that if world oil prices rise unabated to $90 per barrel, the deficit in the Philippines’ current account, or net dollar earnings, would jump to 4.5 percent of gross domestic product (GDP), putting more depreciation pressures on the peso.

The current account deficit stood at 3.7 percent of GDP at the end of the first quarter, as it is expected by the BSP to settle at 3.9 percent of GDP by end-2025.

"Although the Philippines’ current account deficit sensitivity to oil price increase is not as high as the likes of Thailand and South Korea, the relatively large starting levels... at 3.5 percent of GDP makes the currency more vulnerable due to greater external financing needs,” MUFG explained.

On top of the impact on the current account deficit and the peso, soaring oil prices would also add to inflation in net importer Philippines, MUFG pointed out.