BSP hikes seen supporting local currency
According to BPI lead economist Emilio Neri Jr., interest rate hikes by the central bank in response to Gulf-driven inflation could support the local currency by reducing the risk of capital outflows and helping preserve the country’s foreign exchange reserves.
THE Bangko Sentral ng Pilipinas is widely expected to hike interest rates at its upcoming monetary policy meeting on 18 June as inflationary pressures from the global energy shock continue to weigh on the Philippine economy and local currency.
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Tighter monetary policy by the Bangko Sentral ng Pilipinas (BSP) could help support the Philippine peso, which remains near record lows against the US dollar amid the fallout from the Middle East conflict.
In a 5 June commentary, Bank of the Philippine Islands (BPI) lead economist Emilio “Jun” Neri Jr. said interest rate hikes by the central bank in response to Gulf-driven inflation could support the local currency by reducing the risk of capital outflows and helping preserve the country’s foreign exchange reserves.
“Rate hikes would help support the peso and ensure that any depreciation remains orderly,” he said.
“Rising inflation could erode real returns, weaken the appeal of local assets, and trigger portfolio outflows, all of which could further pressure the currency,” Neri added.
50-basis-point policy rate increase projection
The BSP is widely expected to deliver another policy rate hike at its next Monetary Board meeting on 18 June, with BPI projecting a 50-basis-point increase as a more aggressive response to rising inflation.
Headline inflation stood at 6.8 percent in May, driven largely by first- and second-round effects from higher global oil prices.
The peso has also remained highly sensitive to oil price volatility, depreciating by about 7 percent and hitting record lows 11 times since the conflict escalated in March. The BSP has likewise identified the peso’s weakness as a contributor to accelerating inflation, which remains nearly four times higher than its end-2025 level.
A weaker peso typically raises the cost of imports. Given that the country sources nearly all of its fuel imports through the Gulf, the recent surge in domestic prices reflects not only higher global oil prices but also the impact of a weaker currency as investors rotated into the US dollar as a safe-haven asset amid heightened macroeconomic uncertainty.
More preemptive policy measures vs inflation recommended
Neri said the BSP should consider stronger and more preemptive policy measures to contain inflation while limiting the additional pressure a weaker peso may place on prices.
He added that a more forceful response from the central bank could help anchor inflation expectations, which the BSP cited as a key concern behind its 25-basis-point rate hike on 23 April.