The Philippine central bank, Bangko Sentral ng Pilipinas (BSP), is preparing for the severe effects of a so-called “Godzilla” El Niño event, which is expected to exacerbate inflationary pressures already heightened by an ongoing oil shock. Governor Eli Remolona highlighted that the bank uses multiple forecast scenarios incorporating different oil price levels and varying severities of El Niño, with the worst-case scenario describing a particularly intense weather phenomenon. The central bank anticipates the most significant impacts on prices will occur between November and February, complicating efforts to maintain price stability amid inflation rates not seen in three years.

Inflation in the Philippines surged to 7.2% in September, up from 6.1% in August, largely driven by an 18% rise in rice prices, one of the country’s staple foods. The Philippines, being the world’s largest rice importer, faces heightened vulnerability to food supply disruptions due to El Niño-induced drought risks. Agriculture Secretary Francisco Tiu Laurel warned that dwindling domestic water supplies could shrink agricultural output, potentially forcing the government to increase rice imports, adding further pressure on an already strained global rice market. The United Nations Food and Agriculture Organization has observed a six-month streak of rising rice prices, now at a 20-month peak.

In response to runaway inflation and supply concerns, the BSP raised its benchmark interest rate by 25 basis points to 5% in August and is expected to continue tightening monetary policy with upcoming rate hikes. Analysts from HSBC forecast another quarter-percentage point increase soon, and a further hike in December, as the central bank strives to anchor inflation expectations. The combination of weather-driven supply shocks and elevated global oil prices poses a formidable challenge to the nation’s economic stability, forcing policymakers to brace for worsening conditions while managing growth risks.

Remolona’s remarks at the International Monetary Fund and World Bank annual meetings underscored the precariousness of the situation, emphasizing the need for vigilance amid uncertainty. The central bank officially labels the regular El Niño as damaging but regards the “Godzilla” variant as significantly more destructive, hence its elevated caution. As the situation unfolds over the coming months, the BSP’s policy decisions will be crucial in cushioning the Philippine economy from spiraling inflation while trying to safeguard purchasing power for consumers during a difficult and potentially prolonged shock period.