ADB: More BSP hikes may support peso

Further interest rate hikes from the Bangko Sentral ng Pilipinas (BSP) may support the Philippine peso, which has slumped to record lows more than 25 times since the onset of the Middle East conflict in March, according to the Asian Development Bank (ADB).

“I think, you know, what we've seen in the Philippines is some tightening in the monetary policy, which is aimed at addressing some of the depreciating pressure on the peso and mitigating the inflationary pressure,” ADB Principal Economist John Beirne said at the multilateral lender’s headquarters last Wednesday.

The peso closed at P62.46 per US dollar last Friday, 25 September. While easing from the latest record high of P62.86 posted on 14 September, the currency has depreciated by about 7.7 percent from the 28 February close, prior to the escalation of tensions between the US, Iran and Israel in the Middle East.

Government officials have said the peso’s slump has been in line with foreign exchange market fundamentals, while BSP Governor Eli Remolona Jr. earlier said the peso’s depreciation may aid the country’s current account deficit and exports.

Beirne on Wednesday likewise said the peso’s depreciation may have pros and cons.

“Many economies in the region have faced depreciating pressures … including the Philippines,” he said.

“So on the negative side, of course, this will lead to inflationary pressure, imported inflationary pressure. On the other hand, it can support net exports. So I think there's a balancing act in a sense as regards the impact of the peso,” he added.

The central bank has enacted three rate hikes worth a cumulative 75 basis points this year, bringing its key policy rate to 5 percent. The BSP earlier flagged the peso’s depreciation as an upside risk to headline inflation, which, despite easing for four consecutive months, remains nearly seven times higher than its end-2025 level amid higher global oil prices resulting from the conflict.

Economists have noted that the BSP’s latest August hike may not have addressed broader market concerns that the central bank has exhausted all measures to keep inflation in check. Following its 27 August hike, which Remolona described as a “preemptive” move amid risks beyond the Gulf conflict, the peso sank to two consecutive record lows, breaching the P62-per-dollar level for the first time in history, where it remains today.

The ADB said it expects the BSP to maintain its tightening bias in the medium term, citing lingering risks from the Middle East as well as inclement weather disturbances. These factors are also expected to dampen the Philippines’ growth outlook and put pressure on headline inflation.

“We project the BSP to continue tightening at a gradual pace,” ADB Principal Economics Officer Teresa Mendoza said.

“Monetary policy [is] a delicate trade-off actually between balancing growth, and also anchoring inflation expectations.”