To cushion the impact of the Russia-Ukraine war on the local economy, the Bangko Sentral ng Pilipinas (BSP) on Thursday, March 10, vows to continue its monetary policy support and to work with the National Government (NG) for its timely and relevant interventions in case the geopolitical conflict is prolonged.
The BSP said it expects the ongoing crisis to continue as it put upward pressures on key global commodity prices such as oil and wheat, as well as its effects on trade and investment.
With heightened uncertainty spilling over to the financial markets as evidenced by “higher volatility and weaker market confidence” the BSP stressed on its continued support for full economic recovery.
As such, the BSP said it “supports the (NG’s) initiatives to implement appropriate fiscal interventions to cushion the economy from increased upside risks to inflation and to safeguard the momentum of economic recovery.”
“In particular, timely social protection measures could help alleviate the impact of rising crude oil prices on the transportation and agriculture sectors. While sustained efforts to ensure adequate domestic food supply could mitigate further supply-side pressures on inflation. Efforts to facilitate further relaxation of restrictions in a safe and deliberate manner could also help in improving confidence and the reinvigoration of economic activities,” said the BSP.
The war between the two biggest Eastern European countries will have an indirect impact on the Philippines through higher oil, energy and food prices.
Last week, BSP Governor Benjamin E. Diokno said the Russian-Ukraine war could lower domestic GDP growth by 0.1 percentage point (ppt) and raise the inflation rate to as much as 4.7 percent this year.
The BSP’s threshold assumption for global crude oil is $95 per barrel for 2022 and 2023.
“Should the worst-case scenario of oil prices reaching $120-140 per barrel occur this year, inflation would be 0.7 -1.0 percentage point above baseline in 2022. In brief, inflation would average between 4.4 - 4.7 percent under the worst-case scenario,” said Diokno earlier.
The Monetary Board, BSP’s policy-making body, has kept a low benchmark rate at two percent since November 2020. The market consensus is that BSP may raise the policy rate by at least 25 basis points (bps) this year and a bigger 50 bps rate hike in 2023. The next monetary policy meeting in on March 24.
Diokno has said that inflation will again break the two-four percent target if global crude prices which has risen past $100 per barrel, will stay above $95 per barrel on a sustained basis. As of February, the country’s inflation is at three percent.