In the wake of the ongoing Russia-Ukraine war, Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said the local economy may be insulated from the conflict's effects on inflation and trade.

“The Philippines’ geographic distance and limited economic link to both Russia and Ukraine, as well as its strong macroeconomic fundamentals, could insulate the domestic economy during the current risk-off episode,” said Diokno on Monday, March 14.

Diokno also said that unlike other countries that are dealing with high levels of inflation because of the conflict’s impact on energy, oil and food prices, the country’s inflation rate as of February of three percent is still within the two-four percent government target.

As of Feb. 17 which was the last time the Monetary Board had a policy meeting, the central bank’s inflation rate projection for 2022 is 3.7 percent and 3.3 percent for 2023, based on data available at that time. Both forecasts are within the two-four percent government target.

Diokno said that with the Russia-Ukraine conflict, the “conditions (have) changed”.

Based on the BSP’s latest sensitivity analysis, if the average global oil price hits $95 per barrel and it is sustained for a long time, local inflation will climb to four percent. If it rises to $120 per barrel, the inflation will be at 4.4 percent and if global oil will continue to increase to $140 per barrel and stay there, the rate will go up to near five percent at 4.7 percent inflation, said Diokno.

“BSP carefully monitors the pass through of international prices to domestic inflation to calibrate appropriate actions. That said, initial conditions matter,” he said.

The BSP chief noted that there are some countries that are starting from high levels of inflation while others have a starting moderate level. Others are within the range forecasts such as the Philippines.

One of the highest inflation is Argentina’s 50.7 percent, while others such as the US and Euro area are handling rates of 7.9 percent and 5.1 percent inflation. The United Kingdom has an inflation level of 5.5 percent currently.

“There is greater sense of urgency to act for countries with high inflation,” said Diokno.

Diokno also said that the direct trade links of Philippines with Russia and Ukraine are “negligible.”

Last year, exports to Russia was at $120 million which was only 0.2 percent of the country’s total exports. “For Ukraine, total exports was a measly $5 million. Other economic linkages through investments, remittances, and tourism were also limited,” said Diokno.

Since the Russia-Ukraine war began last Feb. 24, the BSP has been sending off public assurances of its impact on the local economy, inflation and the exchange rate which it said is muted.

Last week, the BSP said it will continue its monetary policy support to cushion the war’s impact on inflation pressures and to ease market uncertainty, higher volatility and weaker market confidence.

The BSP assured the market and investors that government actions such as fiscal interventions to cushion the economy from increased upside risks to inflation will be supported by the central bank. These include initiatives to alleviate the impact of rising crude oil prices on the transportation and agriculture sectors.

Diokno has said earlier that the Russian-Ukraine war could lower domestic GDP growth by 0.1 percentage point this year. The government has a GDP growth forecast of seven to nine percent for 2022.