Peso’s freefall

The peso did not stumble. On 27 October, it closed at P64.17, the first finish above P64 in history. That was its 38th record low this year, and it came days after the central bank did something a currency in mere “seasonal noise” never requires.

The Monetary Board raised rates 50 basis points to 5.50 percent, a cumulative 125 basis points. The market just shrugged.

That is the point. When a currency keeps sinking through rate hikes, the problem is not the rate. It is the economy underneath. The Bangko Sentral ng Pilipinas (BSP) projects a $9.2-billion balance-of-payments deficit and a $19.1-billion current-account deficit for 2026.

The country is paying for more than it earns. Oil, wheat, fertilizer, and fuel all arrive in dollars, and the Middle East has kept crude expensive.

Remittances and call center receipts, the dollar engines of the last two decades, cannot cover a factory floor that was never built, a power grid that was never fixed, and farm-to-market roads that were never finished.

Inflation printed 7.2 percent in September, with economists eyeing 7.8 to 7.9 percent for October. Growth is sliding. That is stagflation, and no central bank can print its way out of it.

Should the BSP intervene? Governor Eli Remolona has a point. He has argued that defending the currency against a strong dollar is futile and only drains reserves, and he insists the October hike was not meant to defend the peso.

The numbers back him. Gross reserves have fallen 8.31 percent from a year ago to just under $100 billion, and the BSP has already been spending them. Burning that cushion to hold an arbitrary number invites speculators to test it. Smoothing disorderly swings is the right use of reserves. Drawing a line in the sand is not.

But “futile” cannot become an alibi. Malacañang has said the means exist to defend the peso. If Governor Remolona will not defend a level, the government must defend the fundamentals: fund power, ports and logistics instead of pork, stop inserting unprogrammed funds into the budget, and sell the country’s creditworthiness with a credible deficit path.

The BSP can steady nerves. Only the Palace and Congress can fix the reason nerves are frayed.

Will the peso breach P65? We think it is close to a coin flip by year-end and likelier than not by early 2027 if oil stays high and the Fed stays hawkish. Some economists see room for a modest recovery toward P63 by December, and a Fed pivot or an oil retreat could deliver it. But the trend has outrun every prediction this year.

If P65 breaks, the damage will not show up on a trading screen. It will show up at the pump, the palengke and the Meralco bill, since higher electricity rates already loom. Imported fuel and grain will cost more in pesos immediately, and jeepney fares and food prices will follow.

Wage earners who live on pesos get no dollar cushion, and raises trail prices by months.

Purchasing power already sits at a record-low P0.73. Small businesses are squeezed twice: dollar-priced inputs rise while customers cut back, and credit tightens as rates climb. The OFW family gets more pesos per dollar, but higher living costs eat that gain before the month ends.

The peso is falling because it is reflecting the real condition of the economy. And if those in power cannot protect the people from the compounding shock of a weakening economy, then heaven help us all.