A new report from Nomura Group suggests that the Philippines is one of the Asian countries most susceptible to the negative effects of El Niño, which could lead to a rate hike in monetary policy. El Niño brings below-average rainfall to the Philippines, which threatens agricultural production in the country. In addition, the United Nations’ Food and Agriculture Organization (FAO) has noted an increase in international rice prices. Nomura recommends implementing fiscal and supply-side policies as the first line of defense, including social assistance, price controls, and subsidies. Monetary policy may be delayed, but rate hikes may need to be resumed due to the limited fiscal space and high inflation risks in the Philippines.
El Niño is expected to limit agricultural production and drive higher food inflation, particularly in countries like the Philippines that heavily rely on food imports. A severe occurrence of El Niño could potentially reduce Philippine GDP growth by 0.2 percentage points. The Climate Prediction Center has declared the presence of El Niño conditions, which are expected to strengthen in the coming months.
The report also highlights that the Philippine government plans to import rice to cover an expected deficit in its buffer stock. The increase in rice prices is attributed to steady demand and concerns over the potential impact of El Niño on crop yields.
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