Peso stays weak as inflation forces BSP to keep hiking
BSP hikes rates to fight inflation, supporting the peso The Philippine central bank raised its policy rate to 5% on August 27, its third straight hike, and said it is ready to tighten further. Higher interest rates attract foreign money into peso assets, which strengthens the peso and pushes USDPHP.FOREX down.
Rate hikes are the main official force working against peso weakness.
Inflation still far above target, and set to jump again August inflation slowed to 6.1%, but the central bank expects September inflation of 6.4-7.4%, the fastest in over three years, driven by food prices after monsoon damage, fuel, and the weak peso. Persistent high inflation keeps the peso under pressure, so USDPHP.FOREX stays elevated.
Runaway inflation is the core reason the peso remains Asia's worst performer.
Oil rebound squeezes the Philippines as a big importer Rising oil prices hit the Philippines hard because it imports over 90% of its oil. Costlier imports mean more dollars are needed, which weakens the peso. OCBC flagged the peso among Asian currencies pressured by the oil rebound, pushing USDPHP.FOREX up.
Oil is a direct, recurring drag on the peso through the import bill.
Peso could gain if global yen strength persists MUFG said the Philippine peso is a smaller beneficiary if the Japanese yen keeps strengthening, because it moves with the yen against the dollar. That would support the peso and pull USDPHP.FOREX lower, a counterweight to the inflation and oil pressures.
It is the one clear force that could strengthen the peso, balancing the bearish picture.