The Philippine peso may continue to decline, with projections suggesting it could sink below 62 against the US dollar. MUFG Bank Ltd. highlights that the prolonged Middle East conflict could exacerbate inflation, potentially reaching 10%.
In their latest forecast, MUFG analysts estimate the peso will trade between 60.50 and 61.50 per dollar in a stable scenario. However, in worst-case scenarios, it could drop past 62.
The ongoing crisis is expected to drive inflation significantly, with rates possibly hitting 7.5% to 10%. This inflation surge threatens to slow economic growth and could lead to a recession.
Extreme inflation would likely make the BSP biased toward tightening.
MUFG Bank Ltd.
The Bangko Sentral ng Pilipinas (BSP) is anticipated to respond with aggressive interest rate hikes, raising the key policy rate by 75 basis points to 5.25% in the near term.
Recent data indicates consumer prices in April rose by 7.2% year-on-year, marking the fastest inflation rate in three years. This increase is primarily driven by rising energy costs linked to the conflict in the Middle East.
The peso's decline is further compounded by the aftermath of a major corruption scandal, which has affected public confidence and spending. The economy's growth rate slowed to 2.8% in the first quarter of 2026.
The BSP has already implemented measures to tighten monetary policy, raising the key rate to 4.5% in response to inflationary pressures. Analysts predict a series of 'modest' rate hikes in the coming months.
The Philippines is vulnerable not only because of its high dependence on the Middle East’ crude oil, but also the weak starting point of growth pre-dating the Iran War.
MUFG Bank Ltd.