Peso Weakens as Philippine Interest Rates Rise

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The Bangko Sentral ng Pilipinas’ (BSP) interest rate hikes might offer limited support for the Philippine peso, which is nearing a historic low. Oversea-Chinese Banking Corp. (OCBC) highlights the impact of elevated oil prices, a robust US dollar, and cautious market sentiment. Christopher Wong, OCBC's forex strategist, notes that the challenging policy backdrop, with weakened growth and rising inflation, risks a situation akin to stagflation.

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In recent months, inflation surged to a three-year high of 7.2% in April, while GDP growth dropped to 2.8% in the first quarter of 2026, marking a five-year low. These economic conditions suggest traditional monetary measures may not suffice to stabilize the currency against the strengthening US dollar. While BSP Governor Eli M. Remolona Jr. indicated an "off-cycle hike" might be considered, Wong remains skeptical of policy moves being effective alone.

With the benchmark rate at 4.5% following a recent hike, Wong argues that another increase by BSP is unlikely to significantly alter the peso's downward trend. The peso continues to be vulnerable to external factors, such as higher oil prices and a strong US dollar. Wong suggests that for the peso to stabilize, it would require lower oil prices, a softer US dollar, and clearer signs of easing inflation pressures.

Other currencies, like the Indian rupee and Indonesian rupiah, are also affected by oil sensitivity and policy issues, while high-beta currencies such as the Australian dollar, South Korean won, and New Taiwan dollar might benefit from risk relief. Currently, the peso trades near ₱61.70 against the US dollar, close to its record low of ₱61.73, with potential movement towards the ₱62.00 psychological level if trends persist.

Despite current challenges, OCBC sees a positive long-term outlook for the peso, predicting a recovery to ₱60.00 by early 2027 and further appreciation to ₱59.00 by the second quarter of 2027.

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  Adapted by ASEAN Now · Manila Bulletin · 29 May 2026