MANILA, Philippines — The Philippine peso’s slide past the P60-per-dollar mark is complicating the monetary policy outlook of the Bangko Sentral ng Pilipinas, raising the possibility that its easing cycle may be cut short or even reversed.
The central bank acknowledged that it is walking a narrowing policy path as currency weakness, coupled with rising global oil prices due to Middle East tensions, heightens inflation risks and pressures policymakers to consider tightening measures again.
Despite ongoing intervention in the foreign exchange market, the peso continued to depreciate, breaching the P60 level on Thursday.
Data from the Bankers Association of the Philippines showed the currency hit an intraday low of P60.4 after opening at P59.9, weaker than its previous close of P59.52.
In a statement following a meeting between BSP Governor Eli Remolona Jr. and Ferdinand Marcos Jr., the central bank reiterated that it intervenes only to curb excessive volatility and ensure orderly market conditions, not to defend a specific exchange rate level.
The BSP stressed that its flexible exchange rate policy allows market forces to determine the peso’s value, with intervention limited to preventing sharp swings that could fuel inflation.
However, the weakening currency is amplifying concerns over imported inflation, particularly as the Philippines remains heavily reliant on oil.
The BSP said it is closely monitoring the potential spillover effects of higher fuel, fertilizer, and transport costs on overall price growth.
Analysts warn that the Philippines is especially vulnerable to so-called second-round inflation effects. Bank noted that rising energy costs could cascade into higher food prices, given the significant weight of food in the country’s consumer price index.
At the same time, the government has taken steps to mitigate inflationary pressures. President Marcos recently ordered the deferment of planned transport fare hikes, a move seen as critical in containing price increases across essential goods and services.
Still, economists caution that sustained global price shocks could force a policy shift. Capital Economics said the Philippines may eventually need to return to monetary tightening if inflation pressures persist.
Finance Secretary Frederick D. Go, who also sits on the Monetary Board, said the BSP is prepared to adopt a more hawkish stance if necessary, with a possible interest rate hike on the table as early as the April policy meeting.
Before the latest external shocks, the BSP had been nearing the end of its easing cycle, which began in August 2024. Since then, key policy rates have been reduced by a total of 225 basis points, bringing the benchmark rate down to 4.25 percent.
Central banks adjust interest rates to manage inflation and support economic growth. An easing cycle, characterized by rate cuts, is typically used to stimulate economic activity.
However, when inflation risks rise, especially due to external shocks such as oil price spikes or currency depreciation, central banks may shift to tighter policies, including rate hikes.
For the Philippines, a weaker peso makes imports such as oil more expensive, driving up domestic prices. This dynamic complicates the BSP’s balancing act between supporting growth and keeping inflation within target.