In early January, the Philippine peso slid to 59.38 per dollar 鈥 its weakest level on record. While it has since recouped some losses, officials have signaled a tolerance for further depreciation and traders are watching closely for any signs of central bank intervention.
A weak peso is a double-edged sword for the Philippines. It could boost remittance flows from the millions of Filipinos who live overseas and send money home, potentially encouraging higher spending in the consumption-driven economy. But it could also push inflation higher as imports become more expensive. The Philippines is also one of Asia鈥檚 most active sovereign bond issuers, and prolonged peso weakness would drive up government borrowing costs and risk further inflating the national debt.
WHAT鈥橲 CAUSED WEAKNESS IN THE PESO?
The peso has fallen more than 3% since July when President Ferdinand R. Marcos Jr. revealed during his State of the Nation address that many of the government鈥檚 flood infrastructure projects 鈥 in what is one of the world鈥檚 most typhoon-prone nations 鈥 were being used as money-making schemes.
Subsequent congressional hearings uncovered allegations of collusion among lawmakers, public works officials and contractors to divert billions of pesos of government funds earmarked for those projects. That ignited mass protests and a broad foreign investor exodus from the equities market. Global investors pulled out a net $220 million from the local stock market from July 29 鈥 the day after Marcos鈥 speech 鈥 to Jan. 9 this year, according to data compiled by Bloomberg. Foreign investors account for more than 40% of the Philippines鈥 stock market turnover.
The Philippine central bank said last year that the outlook for domestic economic growth had weakened due to softened business confidence amid concerns about public infrastructure spending.
Also weighing on the peso are expectations of further monetary easing this year, as the central bank moves to cushion the economic fallout from the graft scandal, with spillover effects expected to persist until the end of 2026. Following the scandal, the government lowered its economic growth target for 2026 to 5%-6% from a previous goal of 6%-7%. Other economists, including from the Asian Development Bank, have also trimmed their growth outlook for the Philippines.
The Bangko Sentral ng Pilipinas has already cut the benchmark rate by 200 basis points since August 2024. Bangko Sentral ng Pilipinas (BSP) Governor Eli M. Remolona Jr. said on Jan. 6 that the central bank would consider one more rate cut this year 鈥 possibly as early as February.
There are other headwinds for the economy beyond the corruption scandal. The 19% tariff the US imposed on imports of Philippine goods from August has slowed factory activity. The BSP has warned of weaker investment inflows and softer growth in key service exports.
Still, the economy is likely to rebound in the second half of 2026, according to Economic Planning Secretary Arsenio Balisacan, who expects benign inflation to boost consumption. Economic managers 鈥 when setting the country鈥檚 national budget 鈥 have factored in slightly more weakness with an exchange rate of P58-P60 to a dollar for this year through 2028.
WHAT ARE THE PROS AND CONS OF A WEAK PESO?
More than 10 million Filipinos live and work abroad, and many of them send money home to help their families. These remittance flows reached a record $34.5 billion in 2024, and the central bank expected these to hit $35.5 billion last year.
A weaker peso makes the remittances worth more in local-currency terms, increasing purchasing power in the Philippines. This could spur household spending, benefiting consumer-centric companies. Household consumption accounts for about two-thirds of the nation鈥檚 gross domestic product.
A weaker peso would also make it cheaper and more attractive for overseas businesses to outsource jobs to the Philippines, providing a favorable backdrop for firms to step up hiring or raise wages, which could in turn support consumption. The Philippines is one of the world鈥檚 largest hubs for business-process outsourcing, employing nearly 2 million people in the industry.
A weaker currency also makes a country鈥檚 goods cheaper for foreign buyers. The peso鈥檚 depreciation could therefore boost the international competitiveness of Philippine manufacturers, potentially leading to an increase in export volumes and revenues. That, in turn, may help to shrink the national trade deficit, which currently averages around $3 billion to $4 billion a month.
On the flipside, a weak peso makes imports more expensive, dampening demand for foreign products while adding to inflationary pressures. The Philippines imports most of its electronic components, as well as industrial machinery, iron and steel, and many meat and dairy products. The country relies on imports for nearly all of its oil requirements, raising the risk of higher fuel prices.
The government鈥檚 finances, however, stand to benefit from the peso鈥檚 weakness. According to a Department of Budget and Management鈥檚 sensitivity analysis, every 1-peso depreciation against the dollar could generate an additional 9.3 billion pesos ($157 million) in tax revenue, including from import duties, in 2026.
WHAT DOES A WEAK PESO MEAN FOR INVESTORS?
A weaker peso makes Philippine assets cheaper for foreign investors, since the same number of dollars is now able to buy more of the local currency. That could encourage overseas investors to invest more in the country and expand their portfolios. That said, the value of any gains or dividends would be worth less in dollar terms.
The appeal of cheaper assets may also be outweighed by what a weaker currency signals 鈥 declining investor confidence and broader economic uncertainty. The economic growth of the Philippines may lose steam if the corruption scandal continues to erode business optimism.
ARE THE CENTRAL BANK AND GOVERNMENT WORRIED?
So far, officials don鈥檛 appear overly concerned about the peso鈥檚 recent decline, and they haven鈥檛 signaled any intent to intervene heavily. That stands in contrast to other Asian monetary authorities that have stepped in to support their currencies.
While many of its Asian neighbors are dependent on exports and 鈥渨ould like to purposely weaken currencies,鈥 the services-oriented Philippines also benefits from a soft peso, Mr. Remolona said.
Instead, he said, the central bank allows market forces to determine the foreign exchange rate and that when it does intervene, it is largely to smooth inflationary swings over time rather than to curb day-to-day volatility.
In any event, the BSP maintains robust foreign reserves 鈥 $110.9 billion as of the end of 2025, equivalent to 7.4 months of import cover 鈥 giving the bank scope to sell US dollars if it needs to intervene. — Bloomberg
