By Katherine K. Chan, Reporter
THE PHILIPPINE ECONOMY is likely to see more harm than benefit from the peso’s depreciation against the dollar, as recent exchange rate volatility adds to inflationary pressures, the financial data analytics arm of S&P Global said.
In an e-mailed response to BusinessWorld, S&P Global Market Intelligence Principal Economist Harumi Taguchi noted that inflationary pressures from the weaker peso have already surfaced, while the country’s export competitiveness has yet to materialize.
“The impact depends on the scale of depreciation, but in the short term, the costs are likely to outweigh the gains, as price pressures emerge before improved competitiveness can meaningfully boost export volumes,” she said.
From the P58-to-P59-a-dollar range before the Middle East war, the peso weakened past several record lows before breaching the P62 level against the greenback in August.
On Monday, the local unit climbed by 0.4 centavo to P62.586 versus the dollar from its historic trough of P62.59 on Friday, Bankers Association of the Philippines data showed.
However, it plunged to its worst intraday showing in history of P62.775, surpassing the previous record of P62.69 seen on Sept. 2.
Year to date, the peso has declined by P3.796 or 6.07% from its P58.79 finish on Dec. 29, 2025.
“We attribute the peso’s underperformance mainly to the Philippines’ heavy reliance on crude oil imports from the Middle East, its persistent trade deficit, and the slow recovery in infrastructure investment following the flood control project scandal,” Ms. Taguchi said.
“However, the latest weakness appears to be driven largely by expectations of US Federal Reserve rate hikes,” she added.
Meanwhile, Oxford Economics Assistant Economist Jun Hao Ng attributed the peso’s decline to the dollar to a confluence of domestic and external headwinds.
“As a net energy importer, the Philippines is therefore vulnerable to a deterioration in its trade balance when oil prices rise, which puts additional downward pressure on the peso,” he told BusinessWorld in an e-mail. “The flood control scandal may also have weighed on investor sentiment, contributing to softer capital inflows and some pressure on the currency.”
The country’s trade-in-goods deficit swelled by 34.9% to $5.97 billion in July from $4.43 billion a year ago, driving the country’s seven-month gap wider year on year to $37.34 billion.
Earlier this year, Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona, Jr. said a weaker peso is not inherently disadvantageous for the Philippines as it could also benefit exporters and narrow the country’s current account deficit.
The latest BSP data showed that the current account gap reached $5.664 billion in the first quarter, equivalent to -4.8% of gross domestic product (GDP). This was wider than the $4.2-billion shortfall or -3.7% of GDP a year earlier.
Speaking at a Senate briefing held in late August, Mr. Remolona also noted that their dollar reserves cannot defend the peso back to the P60 handle, adding that the exchange rate itself is “very hard” to correct given the country’s weak exports.
S&P Global Market Intelligence sees the Philippines’ current account deficit ending at $17.3 billion this year, while Oxford Economics likewise projects a wider gap year on year.
“Oil prices will remain one of the main drivers of the external balance,” Mr. Ng said. “Elevated global oil prices have raised the Philippines’ import bill and widened the trade deficit, while weaker global demand could constrain export growth and put further pressure on the current account.”
For the BSP’s part, the current account gap could widen to $18 billion or -3.6% of GDP by end-2026 from the $16.3 billion or -3.3% of GDP last year.
INFLATION RISKS
Citing S&P Global Market Intelligence’s model, Ms. Taguchi said the peso’s depreciation versus the greenback has so far stoked headline inflation by around 0.2%-0.3%.
“The recent peso weakness is unlikely to have a significant impact on inflation, but it could affect inflationary expectations and second-round effects could become larger if it persists,” she said.
Mr. Ng also flagged heightened inflation risks from the peso’s recent slump, but noted that inflation remains largely driven by energy and food prices.
“We do see some additional inflation risk from the weaker Philippine peso, as depreciation raises the cost of imported goods and inputs,” he said. “However, the bigger drivers of inflation are likely to remain global energy prices, amid tensions in the Middle East, and food prices, given El Niño-related supply pressures.”
In August, headline inflation stood at a five-month low of 6.1%, slowing from July’s 6.2% but accelerated from the 1.5% clip last year.
August also marked the sixth consecutive month that inflation blew past the BSP’s 3% target, bringing the year-to-date inflation to 5.2%.
The central bank chief has noted that they try to keep their foreign exchange market intervention limited to smoothening out sharp inflationary swings to prevent exhausting their dollar reserves.
The BSP sees inflation sharply accelerating to 6.1% this year from 1.7% in 2025, with a peak expected by the fourth quarter amid the anticipated “Super El Niño.”
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