The Philippine Stock Exchange index (PSEi) extended its decline on Friday, closing at 5,943.49, down 0.67 percent, as investors reacted to the Bangko Sentral ng Pilipinas (BSP)’s rate hike to 4.50 percent and rising inflation expectations.

The BSP raised its key policy rate by 25 basis points on Thursday in response to energy-driven price pressures linked to the Middle East conflict. The move marks a reversal of its February rate cut, which had been implemented amid lingering effects of weak 2025 economic growth, partly driven by slower consumption and reduced government infrastructure spending following the flood control scandal.

“Headline inflation is now projected to breach our tolerance range not just this year, but in 2027 as well. Inflation expectations are rising further, increasing the risk that they will become unanchored,” said BSP Governor Eli M. Remolona Jr..

Sentiment remained fragile, as investor concerns over inflation—projected to accelerate to 6.3 percent this year—and uncertainty surrounding the conflict’s resolution persisted. Net value turnover fell below the year-to-date average at P5.23 billion, while foreign outflows reached P628.11 million, signaling continued risk aversion.

Sector performance was broadly negative, with banks leading losses (-1.63%), reflecting sensitivity to higher rates and weaker growth expectations. Only industrials posted marginal gains (+0.10%), while market breadth remained weak, with decliners (110) outpacing advancers (80). Stock-specific moves pointed to defensive rotation, with Monde Nissin gaining on consumer staple demand, while Bank of the Philippine Islands declined sharply amid rate and valuation pressures.

Meanwhile, the peso weakened further to P60.70 per US dollar from around P60.48 previously, nearing the record low of P60.74 posted last 31 March. 

Friday’s decline reflects sustained dollar strength and external pressures. The move comes as global markets price in a “higher-for-longer” US interest rate environment, supporting the dollar, while geopolitical tensions continue to elevate oil prices and risk premiums. The Philippines remains particularly exposed given its reliance on imported energy, which widens the trade deficit and increases dollar demand.

The BSP’s rate hike also reinforced expectations of persistent inflation—now projected to remain above target—while ongoing uncertainty in the Strait of Hormuz kept crude prices elevated. Together, these factors drove a risk-off tone, weighing on both equities and the peso.