The Philippines to gain from lower oil prices

Most countries in the region are net oil importers (Malaysia is the key exception) and should gain from the recent drop in oil prices, with the Philippines likely to be among the biggest beneficiaries. Consumer price inflation in the Philippines reached a nine-year high of 6.7% y/y in October. Lower oil prices, which will put downward pressure on domestic energy and fuel prices, mean inflation should drop back over the coming months. This in turn will reduce the pressure on the central bank to hike interest rates further. We think this month’s rate hike by the central bank will be the last in the current tightening cycle. The drop in prices should also lead to a fall in the country’s oil import bill, and provide some support to the current account. The shift from a current account surplus to a deficit over the past few years has made the Philippines more vulnerable to shifts in global risk appetite and put downward pressure on the currency. Finally, lower oil prices should lead to an increase in real incomes, which should provide a boost to consumption and investment, and help to offset the impact of some of the central bank’s recent interest rate hikes.