Peso tipped to weaken further, possibly sinking past 62 vs $1
The Philippine peso is expected to continue to underperform as the Middle East conflict drags on, MUFG Bank Ltd. said, adding that a prolonged war could push inflation to as high as 10 percent and trigger aggressive interest rate hikes from the Bangko Sentral ng Pilipinas (BSP).
In a report, MUFG analysts said they expect the peso to trade between 60.50 and 61.50 per dollar in their 2026 base case, with the currency weakening past the 62 level in riskier scenarios.
Under adverse and severe scenarios, inflation could climb to 7.5 percent or even 10 percent, with supply shortages likely to sharply slow economic growth and potentially trigger a recession in the worst case.
“Extreme inflation would likely make the BSP biased toward tightening,” the bank said, adding that it expects the central bank to raise rates by another 75 basis points sooner rather than later, bringing the key policy rate to 5.25 percent.
Their view followed fresh data showing consumer prices rose 7.2 percent from a year earlier in April, the fastest pace in three years, as a global oil shock tied to the Middle East conflict lifted energy costs and quickly spilled over to other household essentials.
The April surge marked the second straight month inflation breached the central bank’s 2 percent to 4 percent target range. This happened while the economy has yet to fully recover from the blow to confidence and public spending caused by a major corruption scandal last year.
Gross domestic product slowed further to 2.8 percent in the first quarter of 2026, from 3 percent in the preceding three months.
The BSP has already moved to tighten policy in response to the global oil shock tied to the US-Israel war with Iran, now in its second month. The central bank raised its key policy rate by a quarter point to 4.5 percent at its April 23 meeting, where policymakers also weighed a larger half-point increase as they acknowledged a “deteriorating” inflation outlook.
The central bank said inflation may average 6.3 percent this year and 4.3 percent in 2027. BSP Governor Eli Remolona Jr. earlier told Bloomberg that the market can expect a succession of “modest” rate hikes.
“The Philippines is vulnerable not only because of its high dependence on the Middle East’ crude oil, but also the weak starting point of growth pre-dating the Iran War,” MUFG said.
“We pencil in some gradual improvement in government spending, but this will be more than offset by the lagged impact of higher inflation and higher interest rates,” it added.
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