Headwinds are starting to manifest in the country's trade as exports unexpectedly contract as mainstay electronics shipments slide.
The peso has been on a downtrend in recent months and is currently the worst-performing currency among ASEAN peers, ING Philippines senior economist Nicholas Mapa said.
A weaker currency tends to magnify threats faced by the Philippines as it fans imported inflation, reflecting reliance on imported food and energy items.
"Supply chain shocks, resurgent demand, and a weaker currency have all contributed to inflation charging past target (currently at 6.3 percent year-on-year), hampering the economic recovery," Mapa pointed out.
Bangko Sentral ng Pilipinas Governor Medalla recently expressed his concern about the impact of a weaker currency on the inflation path.
Given expectations that the current account deficit will persist, BSP is expected to front-load tightening, with a 50 basis point rate hike at the meeting on 22 September.
Deficit hits new low
July trade data show the trade deficit widening further to $5.9 billion, hitting a new record low. Imports sustained the recent trend of double-digit gains (21.5 percent) while exports unexpectedly fell by 4.2 percent.
Electronic exports, which account for the bulk of total outbound shipments, fell for a second straight month to post a contraction of 7.9 percent.
Softer demand for electronics will likely persist, which does not bode well for the Philippine export sector.
Imports posted another month of strong gains but the increase can be tied to pricey energy and food importsm according to Mapa.
