The Philippines is exposed to Middle East supply disruption risks, which can affect inflation and the peso. April CPI rose to 7.2% year-on-year, above the 5.5% consensus and up from 4.1% previously.
The inflation jump increases pressure on the Bangko Sentral ng Pilipinas (BSP) to tighten policy. MUFG points to possible additional rate rises of 75–100 basis points this year, including the chance of an off-cycle meeting and a 50 basis point move.
Rate rises may be limited by weak growth conditions in the Philippines. The context includes fiscal tightening and issues linked to flood control project scandals, alongside a negative output gap.
MUFG sets scenario ranges for USD/PHP based on regional developments. If the Strait of Hormuz remains closed, USD/PHP is projected at 62.00–63.00, while de-escalation points to 60.50–61.50.
The piece notes it was produced using an AI tool and reviewed by an editor. It also describes FXStreet Insights as selecting market observations from experts and analysts.
Looking back at the inflation shock of April 2025, when CPI surged to 7.2%, we saw significant pressure on the peso. That environment contrasts sharply with today, as April’s inflation has moderated to 3.8%. This lower inflation reduces the immediate pressure on the Bangko Sentral ng Pilipinas (BSP) for aggressive action.
The BSP is no longer caught between a rock and a hard place as it was in 2025. With first-quarter GDP growth coming in at a respectable 5.7%, the weak growth concerns that previously limited their actions have eased. This allows the central bank to maintain its current policy rate of 6.50% from a position of relative strength, rather than emergency.
Those high targets of 62.00 to 63.00 for USD/PHP, driven by fears around the Strait of Hormuz last year, now seem distant. With the exchange rate currently stable around the 57.50 level, implied volatility in peso options has likely decreased significantly. For the coming weeks, traders might consider strategies that benefit from range-bound markets, such as selling short-dated strangles, instead of the directional bets that were necessary in 2025.
The primary risk for the peso has shifted from a geopolitical inflation shock to the timing of the BSP’s policy easing. Given that inflation is now well within the central bank’s 2-4% target range, markets are pricing in potential rate cuts later this year. Derivative traders should now be positioning for a potential weakening of the peso driven by monetary policy divergence with the US Federal Reserve, rather than by domestic crisis.
