The Bangko Sentral ng Pilipinas (BSP) has reiterated its “hands-off” stance toward the local currency, which has depreciated significantly and hit multiple record lows since the escalation of the Middle East conflict in March.
“We worry about it to the extent that it worsens inflation,” Governor Eli M. Remolona Jr. said in a recent interview, noting that a weaker peso also helps narrow the country’s current account deficit.
The peso has depreciated by about 7 percent since its P57.66 close immediately prior to the conflict’s escalation. The central bank earlier identified the peso’s recent backslide as one of the drivers of the three-year-high 7.2-percent inflation rate recorded in April, during which the local currency posted multiple record lows as a result of the conflict.
“[W]e can't allow this kind of deficit to persist forever, and a weaker peso helps narrow the gap,” he added.
The BSP earlier projected the country’s overall current account deficit, which consists of trade in goods and services as well as income flows to and from the rest of the world, to widen to $20.3 billion, equivalent to 4 percent of gross domestic product (GDP). This is significantly higher than the end-2025 level of $16.3 billion, reflecting a sharper imbalance in trade and services flows.
The BSP closely monitors the current account since larger external deficits can pressure the peso, making imports such as oil, fuel, and food more expensive in local currency terms. Given that these imports remain the key drivers of the spike in April headline inflation, this complicates the central bank’s efforts to keep price growth stable and inflation expectations anchored.
Remolona has repeatedly emphasized the central bank’s hands-off approach to the peso amid the national energy emergency – a stance he reiterated once again on Friday.
“[W]e're not trying to seek a level for the peso. We're letting the market do its work.
“What we're doing is trying to maintain orderly markets in the foreign exchange market, and we're trying to prevent wild swings in the exchange rate.”
Remolona said the BSP had been “as active as usual” in managing the currency’s backslide over the past three months. However, BSP data showed foreign exchange reserves plunged to a 12-year low of $469 million – nearly four times lower than the $1.74 billion recorded at end-March and the lowest level since 2014.
The BSP uses foreign exchange reserves, in part, to address excessive fluctuations in the currency market. Despite the central bank’s reservations about intervening in the forex market, the sharp decline in reserves may indicate heavier BSP intervention to defend the peso, which has fallen to record lows 11 times since the Middle East conflict escalated in March.
Last week, reports said the peso could weaken further to P63.50 by August if oil supply disruptions persist and the US Federal Reserve adopts a more hawkish stance. Remolona said the BSP may or may not intervene, depending on the pace of the peso’s decline.
“It depends on how quickly it does that. If it does that in a measured way, then that might be okay,” he said.
“Because along with watching the peso, we also watch the current account, and we're trying to make sure the current account deficit remains sustainable.”
As of press time, the peso remains near record lows at the P61 level.