BSP faces ‘tremendous’ pressure to defend peso
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said the central bank was ignoring the “tremendous” pressure to defend the peso, saying that present economic realities do not warrant a forceful intervention.
Speaking at an event on Thursday, Remolona said the central bank was not alarmed by the prospect of the currency weakening to the 60-per-dollar level, though he emphasized that authorities would step in to smooth excessive volatility that could stoke inflation.
His remarks come as the peso remains under strain from a strengthening US dollar. On Jan. 7, the currency slid to a record low of 59.355 per dollar, as investors awaited clearer signals on the future path of American monetary policy.
“There’s tremendous pressure to defend the peso, and we’ve resisted that pressure,” he said.
“The economics doesn’t warrant defending the peso,” he added, stressing that a weaker currency is neither inherently beneficial nor harmful for the country.
A softer peso carries mixed consequences for the Philippines. It raises the domestic value of remittances sent home by millions of overseas workers and can make exports more competitive.
But Remolona said efforts to deliberately weaken the currency to boost exports were unlikely to yield meaningful gains, noting that economies with export-led growth had pursued that strategy years ago to build their market share. “That ship has sailed,” he noted.
At the same time, a depreciating peso risks pushing up import costs and rekindling inflation. Prolonged weakness could also increase the peso value of foreign-currency debt held by the government and private firms.
The BSP is willing to absorb some currency weakness as it approaches the conclusion of its pro-growth push. Remolona this week signaled that the central bank’s easing cycle could end with just one more interest rate cut—possibly in February—unless “bad surprises” emerge that would justify further reductions.
In a note, analysts at MUFG projected a “shallow” recovery to 58.80 in the first half of 2026 as government spending improves and capital inflows pick up on the back of some recovery in economic growth and inflows of foreign direct investments.
“We have adjusted our peso forecast profile weaker to account for increased downside risks from recent rice import policy changes, even as government spending should improve, providing some modest support for the peso,” they said.
Separately, economists at DBS Bank said the pressure weighing on the peso could persist amid the prospect of more interest rate cuts by the central bank.
“Prospect of further rate cuts and consequent compression in the Philippine-US rates, besides absence of a strong resistance to depreciation pressures, weighed on the peso,” they said.
“Our baseline projection is for one more cut beyond February to the neutral rate of 4 percent to address downside risks to growth,” they added.
