Israel-Iran conflict seen unlikely to derail BSP rate cut
The ongoing Israel-Iran conflict would unlikely delay the widely expected interest rate cut of the Bangko Sentral ng Pilipinas (BSP) this week, although the rising tension in the Middle East could affect the next decisions of the central bank, Deutsche Bank said.
The Philippine peso retreated to the 56-per-dollar territory while local oil companies announced a big-time pump price hike of almost P2 per liter this week after Israel and Iran traded deadly strikes. The conflict stoked demand for safe havens and sent global energy prices soaring.
Deutsche Bank said in a commentary, however, that the development would unlikely derail the widely anticipated cut from the BSP on Thursday, as the Monetary Board (MB) has enough room to ease because of benign inflation.
But Germany’s largest lender said the attacks in the Middle East could make things hard for local rate-setters later on.
“We think that the spike in oil prices on June 13 due to the Israel-Iran conflict is unlikely to derail BSP’s decision to cut this month, but it could weigh on the central bank’s decision in the subsequent August meeting,” Deutsche Bank said.
All 15 economists surveyed by the Inquirer last week predicted that the powerful MB would deliver a quarter-point cut at their upcoming policy meeting later this week. If realized, this would put the overnight rate that banks typically use as a guide when pricing loans to 5.25 percent. The move would also bring the total rate reduction under the current cycle at 1.25 percentage points.
All economists in the poll agreed that the continued disinflation in May was a strong justification for further easing.
The consumer price index, which measures the average change in prices that consumers pay for a basket of essential goods and services, rose 1.3 percent year-on-year last month, slightly below the annual increase of 1.4 percent in April.
Since the beginning of the year, inflation has averaged 1.9 percent, undershooting the BSP’s target band of 2 percent to 4 percent.
