BMI: Middle East conflict keeps pressure on peso
The Philippine peso is likely to remain under pressure in the coming months as renewed tensions between the United States and Iran, a stronger dollar and a seasonal pickup in import demand continue to weigh on the currency, BMI Research said.
In a note to clients, the Fitch Group unit said it expects the peso to trade between 61 and 63 per dollar this year, leaving it among Asia’s weakest-performing currencies as higher oil prices and external risks continue to undermine sentiment.
The research firm said rising global energy prices have worsened the Philippines’ external position, while subdued foreign direct investment inflows have provided little support for the currency amid heightened uncertainty.
A firm US dollar should reinforce peso weakness, BMI added, as financial markets continue to price in a quarter-point rate hike by the US Federal Reserve this year.
“The economy remains heavily reliant on imported energy, making the currency particularly exposed to oil price shocks,” the firm said. “Renewed gains in global energy prices will further weigh on the peso by pushing up the import bill and widening the trade deficit.”
The peso’s decline is producing winners and losers across the Philippine economy.
For millions of families, money sent home by overseas Filipino workers now converts into more pesos, giving households greater spending power. Exporters also stand to benefit as a cheaper currency makes Philippine goods more competitive abroad.
But those gains come with costs: imported goods become more expensive, adding to inflationary pressures, while companies and the government face higher peso costs in repaying foreign-currency debt.
Bangko Sentral ng Pilipinas (BSP) Gov. Eli Remolona Jr. has acknowledged the trade-offs.
A weaker peso could lift exports and help shrink the country’s trade deficit, he said, even as it risks pushing up prices.
He has repeatedly stressed that the central bank does not defend a particular exchange rate, preferring to let market forces determine the peso’s value while stepping in only to curb excessive volatility.
The BSP last month raised its benchmark interest rate by a quarter percentage point to 4.75 percent. The move brought total rate increases since April to 50 basis points, underscoring the central bank’s effort to tame inflation as external risks mount.
Looking ahead, BMI said it expects the peso’s weakness to persist into 2027, forecasting the currency to average 60 next year.
“Few drivers point to a sustained peso appreciation: FDI inflows will probably remain subdued given persistent geopolitical uncertainty, while higher effective US tariff rates on goods from the Philippines will likely weigh on export growth,” the firm said.
