The Philippine peso underperformed all emerging-market Asian currencies this year, declining 6.2 percent to become the region's worst performer. It reached a record low of 62.77 per U.S. dollar on Monday, while regional peers advanced against the dollar over the same period.
The depreciation stems from structural economic vulnerabilities. The Philippines relies heavily on service industries rather than manufacturing or commodity exports, leaving it exposed to external shocks—particularly spikes in global oil prices, which require substantial dollar-denominated imports.
This dependency manifests in widening deficits. In the first seven months of this year, the Philippines' trade gap expanded 29 percent to $37 billion. The balance-of-payments deficit—weak exports relative to strong import demand—directly pressures the currency.
The direct consequence is reserve depletion. Foreign reserves fell 9 percent to $103 billion from a record high in February, significantly constraining the Bangko Sentral ng Pilipinas' capacity for currency intervention.
In a decisive policy shift, President Ferdinand Marcos Jr. and BSP Governor Eli Remolona publicly acknowledged that defending the peso by drawing down foreign reserves is futile. During a Senate hearing last month, Remolona stated that attempting to guide the currency back below 60 per dollar risks severely depleting reserves. The central bank will now focus on dampening volatile swings rather than targeting a specific exchange rate.
These candid admissions preceded a sharp decline. The peso tumbled to new record lows in the four days following Remolona's testimony. Diwa Guinigundo, former BSP deputy governor for monetary and economic policy, said such statements "will encourage people to speculate more because they know you won't bet on the reserves which are dwindling."
The Philippines' limited defensive capacity contrasts with regional peers. India maintains foreign reserves exceeding $700 billion and mobilized $127 billion from its diaspora to attract dollars. Indonesia holds $145 billion in reserves and aggressively raised interest rates to attract foreign bond investors, supporting the rupiah.
Domestic inflation pressures compound the external headwinds. Three consecutive BSP interest rate hikes have failed to tame inflation running at more than twice the official target. This backdrop, combined with rising odds of a U.S. rate increase, intensifies downward pressure on the peso.
Strategyists project further depreciation. JPMorgan Chase and Bank of America forecast the peso could extend losses to 65 per dollar by mid-next year. Domini Velasquez, chief economist at China Banking Corp. attributed weakness to "a combination of factors: the structural balance-of-payments deficit from weak exports relative to strong import demand, risk-off sentiment favoring the dollar, softer domestic sentiment, and expectations of further peso depreciation."
