Oil price trends, likely recession worry new BSP governor

Bangko Sentral ng Pilipinas (BSP) Governor Benjamin E. Diokno said oil price volatility and its effects on the global economy and geopolitics are worrying factors that need to be closely monitored.

Diokno also expressed concern about talks of recession with a vulnerable US economy. These recession fears have heightened this year.

“Tingnan natin kasi meron pang possible recession (Let’s see because there could be a possible recession),” he said when asked on when he thinks the BSP could move benchmark rates again.

Diokno said there is much that the BSP has to review and evidenced-based factors that need to be studied and assessed before any policy action could be considered.

He does not see a reduction in policy rates yet and may favor a pause as what his predecessor the late Governor Nestor A. Espenilla Jr., did when the BSP left key rates alone in the last two Monetary Board policy meetings. The next time they meet, on March 21, will have Diokno as presiding chairman.

Diokno echoed previous BSP rhetoric that it will be hard to pinpoint when they will move policy rates because oil prices are still volatile. “Hindi pa natin makikita, baka tataas na naman prices ng gasolina pero maganda yung deceleration ng inflation (We don’t see it yet, maybe prices of gasoline will increase again but the inflation deceleration is positive).”

“Inflation is tapering off … but we have to be careful,” he said.

In a separate interview, BSP Deputy Governor Diwa C. Guinigundo said they are closely watching the global economy and markets, and that presently they are seeing a softening global economy and “markets (that) are experiencing some kind of financial tightness.”

Guinigundo said it’s crucial to consider actions that the US Federal Reserve, the European Central Bank and the Bank of Japan will do next.

“If we synthesize all of this – what are we looking at? If there will be a (global) slowdown, the advance economies will start easing monetary policy just to counter the slowdown. And, assuming the emerging markets (EM such as the Philippines) will maintain policy rates, we will see some reflow of capital to EMs,” said Guinigundo. The global slowdown is one of the downside risks to local inflation since a slowing world economy translates to lower demand for key commodities such as fuel.

A reflow of capital to EMs would likely force the BSP to reconsider an appropriate monetary stance. “At this point, inflation forecast is at 3.1 percent this year and three percent in 2020 – this is where the Governor (Diokno) is coming from when he said that there are opportunities for monetary easing.”

Guinigundo said that between now and March 21, when the Monetary Board meets to decide on interest rates, anything can happen. “Any information can be made available that will be material to the final decision on March 21. So, it is very difficult even for the Governor, to be committing to certain timing, pacing, and even the magnitude of monetary adjustment because your decision will also be affected or shaped by the developments between now and March 21,” he added.