The Philippine peso could be on course to retest its record low of 59 against the U.S. dollar, driven by escalating geopolitical concerns and uncertainties surrounding the upcoming U.S. election, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. warned on Friday. In remarks made on the sidelines of the International Monetary Fund (IMF) and World Bank annual meetings in Washington, Governor Remolona underscored that prolonged risk factors could further weaken the peso if they persist.
“If the uncertainty, if the risks persist,” Governor Remolona said, “then 59 is possible, but I don’t know if it’s likely.” His comments come amid a period of heightened pressure on emerging-market currencies, including the Philippine peso, largely attributed to the dollar’s ongoing strength and the fluctuating expectations of the U.S. Federal Reserve’s monetary policy decisions. These conditions are exacerbated by political risks in the U.S., where a tight presidential race is creating additional layers of uncertainty for global markets.
The peso’s recent performance has already reflected this pressure. Having slid nearly 4% against the U.S. dollar this month alone, the peso closed at 58.32 on Friday, marking a three-month low. As the peso’s value weakens, concerns mount about potential inflationary impacts that could further challenge the Philippine economy.
Emerging-market currencies like the peso are particularly vulnerable to swings in the U.S. dollar, given the global preference for dollar-denominated assets in times of uncertainty. The peso’s recent slump isn’t an isolated occurrence; it mirrors a wider trend among emerging currencies which are feeling the squeeze from a dollar that has surged in recent months. The dollar’s strength stems from market expectations of a more extended tightening cycle by the U.S. Federal Reserve and is further influenced by the shifting dynamics of the U.S. presidential race.
Governor Remolona’s stance on the peso’s recent trajectory has so far remained cautious yet unconcerned about immediate intervention. Instead, the BSP chief has signaled that the current trajectory of the peso does not compel the central bank to alter its planned easing of interest rates. Despite two quarter-point rate cuts implemented since August, Governor Remolona remains confident in BSP’s gradual easing strategy to bring the benchmark rate down to 4.5% by the end of 2025, from its current level of 6%.
The Bangko Sentral ng Pilipinas has maintained a restrained stance on direct intervention, with Governor Remolona noting that the central bank has not engaged in market interventions to stabilize the peso. Although some analysts argue for more active measures to protect the peso from drastic fluctuations, Remolona’s approach appears focused on ensuring gradual adjustments rather than abrupt shifts.
“We worry about the peso moving too sharply,” Remolona said, explaining that BSP’s concerns regarding the currency center on the “pass-through” effects. Sharp depreciations in the peso can lead to higher import prices, translating into upward pressure on inflation rates. This risk is particularly salient in the Philippines, where inflation has proven to be a persistent economic challenge, and price stability remains a central focus for policymakers.
Yet, Remolona also noted that the recent depreciation of the peso reflects a larger global sentiment, characterized by an international “flight to the dollar.” He emphasized that this trend is not exclusive to the Philippine currency but is instead part of a broader global response to perceived risks, including those emanating from the U.S.
The peso’s sensitivity to external factors is heightened by the uncertainties surrounding the U.S. presidential election. The tight race in the U.S., particularly if it results in a Donald Trump victory, could lead to market concerns over potential interference in the Federal Reserve’s autonomy. Such a scenario might prompt investors to flock further toward the dollar, viewing it as a “safe haven” amid instability.
The strength of the dollar as a safe haven currency has only intensified in recent years, according to Governor Remolona. “The dollar has become even more of a safe haven currency than before,” he noted, suggesting that a Trump win could generate additional investor caution regarding the Fed’s independence and monetary policy direction.
With the U.S. presidential election shaping up to be contentious, the specter of political interference in economic policy has created an environment of heightened uncertainty, one that has ripple effects far beyond American borders. For emerging markets like the Philippines, this uncertainty could amplify existing economic pressures, further weakening the peso and challenging domestic economic policies.
In his role as BSP governor, Remolona has repeatedly affirmed that domestic factors, rather than fluctuations in the U.S. dollar or changes in U.S. interest rates, carry more weight in the bank’s decision-making process. This stance is part of BSP’s broader strategy to prioritize sustainable economic growth while keeping inflation in check. After two quarter-point cuts this year, BSP aims to lower the benchmark rate by another quarter-point in December, remaining on track to reduce the rate to 4.5% by the end of 2025.
The peso’s weakening has not yet led BSP to adjust its easing path, as the central bank remains focused on medium-term inflation control and economic stability. By easing rates gradually, BSP aims to stimulate economic growth without sparking excessive inflation, a challenging balance given the peso’s recent devaluation.
The relationship between the peso’s value and domestic inflation poses a complex challenge for the BSP. A weaker peso typically leads to higher import prices, as goods denominated in foreign currencies become more expensive. In a country like the Philippines, which imports a significant portion of its food and energy supplies, these price increases can lead to rapid inflation if not managed carefully.
Governor Remolona’s approach reflects an understanding of these dynamics, prioritizing a gradual rate-cutting strategy to prevent sudden price spikes. However, if the peso were to continue sliding and reach its historic low of 59, the BSP may face mounting pressure to rethink its stance to mitigate potential inflationary effects.
Despite the potential for the peso to reach its record low, Governor Remolona has downplayed the likelihood of a direct intervention to stabilize the currency, focusing instead on the broader goals of economic growth and inflation control. However, the governor’s acknowledgment of “more uncertainty” underscores the BSP’s awareness of the ongoing risks posed by both global market volatility and domestic economic challenges.
The peso’s future trajectory is likely to be influenced by a combination of global factors, particularly the U.S. election outcome and any resulting shifts in U.S. monetary policy. Should the dollar continue to strengthen, emerging markets like the Philippines may face continued pressure on their currencies. In the meantime, Governor Remolona’s cautious approach serves as a reminder of the delicate balance BSP seeks to maintain, as it navigates both domestic economic priorities and global uncertainties.
