Emerging market (EM) Asian currencies continue to bear the brunt of ongoing geopolitical rifts, with the peso suffering the deepest decline among the region’s energy-importing economies since conflicts in the Middle East flared up nearly four months ago.
According to a report published last Wednesday by global credit rating agency S&P Global Ratings, the peso has depreciated by roughly 7.1 percent against the United States (US) dollar since late February 2026.
“Adverse risk sentiment and higher current account demands to fund energy imports are weighing on currencies,” said Vishrut Rana, S&P Global Ratings’ senior economist for EM Asia.
A widening current account deficit exerts downward pressure on the peso because it reflects a greater demand for foreign exchange to pay for imports than the supply generated by exports and remittances. As a net energy importer, the Philippines belongs to a regional cohort facing “deeper depreciation” than net exporters.
The peso’s decline is notably steeper than other net importers, such as the Thai baht (5.2 percent) and the Indian rupee (4.9 percent), and far outpaces the Vietnamese dong (0.4 percent). Locally, only the Indonesian rupiah has suffered a sharper drop, shedding around 7.7 percent.
“Indonesia is an exception and has faced significant capital outflows on weak investor sentiment amid a slew of policy changes, despite its status as an energy exporter,” Rana noted.
Since January, the peso has depreciated by 4.6 percent against the greenback, moving alongside a broader tightening in the domestic financial landscape.
In the bond market, local benchmark yields bucked the regional trend. While many emerging markets saw yields ease in May, the Philippines’ 10-year local currency government bond yields surged by about 50 basis points (bps). This spike in borrowing costs highlights the country’s vulnerability to shifting global financial conditions.
S&P noted that “the rise in the Philippines reflects ongoing monetary tightening and sensitivity to global financial conditions.” To anchor inflation expectations and defend the under-pressure peso, the Bangko Sentral ng Pilipinas (BSP) has aggressively raised its key policy rate to 4.5 percent.
Stubbornly high inflation has forced the central bank to maintain this hawkish stance. Headline inflation peaked at a more-than-three-year high of 7.2 percent in April before easing slightly to 6.8 percent in May—still well above the government’s 4 percent target ceiling.
However, this aggressive campaign to curb inflation and defend the currency threatens to sap domestic economic momentum.
Japanese investment bank Nomura Holdings Inc. indicated that while it remains bullish on growth in India, Malaysia, and Singapore, its outlook for the Philippines and Thailand is decidedly “bearish.”
Euben Paracuelles, Nomura’s chief economist for ASEAN, told the Manila Bulletin via email that the downbeat outlook for the Philippines stems from expectations that the economy will grow below its long-term potential. While Paracuelles noted that the economic drag from a fiscal squeeze—tied to recent flood control corruption scandals—is beginning to moderate, other headwinds persist.
“The country is also among the most highly exposed to the energy price shock, which is causing a surge in overall inflation and weakening household purchasing power,” Paracuelles said, adding that “rising political risks are weighing on sentiment and investment spending.”
Consequently, Nomura has slashed its 2026 real gross domestic product (GDP) growth forecast for the Philippines to 4.6 percent, down from its previous 5 percent projection, citing an expected surge in the cost of living. Looking ahead to 2027, Nomura expects economic growth to recover to 5.6 percent, leaving its previous forecast unchanged.
