The peso’s recent depreciation may indicate that further tightening from the Bangko Sentral ng Pilipinas (BSP) might be warranted as the Philippine economy continues to grapple with weak growth, a declining currency and elevated domestic inflation.

In a recent commentary, former BSP Deputy Governor Diwa Guinigundo said the peso—which breached the P62 threshold for the first time and sank to consecutive record lows following the central bank’s 27 August hike—might indicate that markets were not reassured that the government is doing all it can to address the economy’s recent woes.

“To be sure, the peso is influenced by global dollar strength, oil prices and other external forces. But its immediate reaction to a rate hike is nevertheless instructive: the market did not seem fully convinced that the BSP had signaled an unambiguous commitment to staying on top of inflation,” he said.

The BSP raised rates by another 25 basis points, its third consecutive rate hike since the onset of the energy shock in March. The disruption to oil supplies in the Middle East has resulted in higher headline inflation, which the central bank has cited as a key factor in raising its key policy rate, amid the risk of Filipinos’ inflation expectations becoming disanchored.

The Gulf conflict has also prompted safe-haven demand for the dollar, while elevated global oil prices have likewise contributed to the local currency slumping to record lows more than a dozen times since March.

In a separate commentary, Bank of the Philippine Islands Lead Economist Emilio Neri Jr. said the peso’s slump may also indicate that more hikes from the BSP may be needed to address inflation, which, despite easing for four consecutive months, has averaged 5.2 percent, well above the BSP’s annual 3 percent target and more than three times the 1.7 percent recorded in the same period last year.

“The recent depreciation of the Peso likely signals the market’s view that additional rate hikes may be needed given the risks to inflation, as well as other external headwinds such as the recent surge in global bond yields,” said Neri.

“With inflation still elevated and the outlook uncertain, keeping the door open to further rate adjustments may be necessary to keep inflation expectations anchored.”

The peso closed at its latest record low of P62.59 per US dollar last Friday as uncertainty in the Middle East pushed oil prices and dollar demand higher.

Guinigundo said weak economic growth, which has slumped for four consecutive quarters amid rising inflation, should not force the BSP to pause raising rates, with rate hikes often coming at the expense of medium- to long-term economic growth.

“The BSP’s primary mandate is price stability. Other authorities must deal with the structural and supply-side impediments to growth. Asking monetary policy to compensate for weaknesses elsewhere risks creating the worst of both worlds: weak growth and persistent inflation.”

Neri, meanwhile, cited significant upside risks that could cause a rebound in headline inflation in the coming months, noting that the peso’s recent slide could likewise contribute.

“The end of the conflict in the Middle East remains highly uncertain, and oil prices are likely to stay volatile. The latest inflation figure may also not yet fully reflect the impact of the recent weather and flooding, the effects of which could materialize in the coming months. In addition, the recent weakening of the Peso could contribute to further inflationary pressure through higher imported costs,” he said.

BSP Governor Eli Remolona Jr. maintained a hawkish stance following the latest hike, noting that the central bank will “tighten as much as necessary” to bring inflation back to its annual 3 percent target.

“The peso’s reaction should not be dismissed. It may be telling us that markets are looking beyond the 25 basis points and asking a more consequential question: Does the BSP really intend to keep monetary policy restrictive until inflation is decisively and sustainably back on track toward the 2-4 percent target?,” said Guinigundo.