EMBA的小眼睛

The conflict in Iraq threatening to evolve into a civil war will not cause another upside risk to domestic inflation as oil prices are seen remaining within expectations, a Bangko Sentral ng Pilipinas official said.

BSP Deputy Governor Diwa C. Guinigundo told reporters the Organization of Petroleum Exporting Countries (OPEC), which supplies a third of the world’s oil requirements, has long committed to maintain a level of production.

This also makes oil prices less vulnerable to shocks coming from geopolitical risks like the worsening conflict in Iraq.

“Much of the world’s supply is coming from the OPEC countries so I think with that assurance, we would have a very manageable level of comfort,” Guinigungo said.

Prices of Dubai crude, the benchmark for most countries in Asia, averaged $104.82 per barrel from June 2 to 11, lower than the $105.52 per barrel average in May.

At the same time, Guinigundo noted that other emerging markets such as China and India have been forecast by the World Bank and the International Monetary Fund to have a modest economic growth this year, translating to less demand for oil.

“So the pressure for oil prices going up will be much less,” the BSP official pointed out.

Geopolitical factors such as the unrest happening in Iraq are already taken into account whenever the BSP recasts its inflation forecasts, Guinigundo recounted.

The central bank has a $90 to 110 per barrel assumption for oil prices for the year.

The BSP forecast inflation to average 4.3 percent this year, above the midpoint of its three to five percent target range.

So far, inflation has averaged 4.1 percent in the first five months of the year, after the rate hit a 30-month high of 4.5 percent in May amid higher food prices.

The central bank is mandated to keep prices stable and ensure this is supportive of economic growth, which hit a lower-than-expected 5.7 percent in the first quarter from 7.7 percent in the same period last year.

But Guinigundo stressed that this is still a very positive development given the history of the country’s economic growth rates.

“If you look at the average in the last 15 years, you have an average of 4.9 percent growth, and we had a 5.7 percent economic growth. So in other words, the economy is doing very well,” Guinigundo said.

“You had all of those adverse economic and financial developments that actually pulled down growth. Without them, you should have a higher growth,” he said.