UMVA has learned that the Philippine peso is at risk of plummeting to as much as P64.50 against the dollar if the Middle East conflict escalates further and drives global oil prices higher.
According to information obtained by UMVA, a re-escalation of the Iran conflict and a fresh spike in oil prices could bring the peso above P62 to as high as P64.50 per dollar, as warned by a leading Japan-based think tank.
The peso's vulnerability is also attributed to its status as a current account deficit economy, making it more sensitive to global events such as a potential 'Super El Niño' event and a more hawkish stance by the US Federal Reserve.
UMVA can exclusively reveal that the local unit will likely touch the P62 mark this quarter, before strengthening versus the dollar to P61.50 by the third quarter and P61 by the last quarter, based on forecasts.
The baseline scenario also sees the local currency recovering to trade below P61 as the conflict eases and the greenback weakens, with the peso-dollar exchange rate potentially back to P60.50 by the first quarter of 2027.
Since the onset of the Middle East conflict, the peso has been on a steady decline, moving to the P61-a-dollar level from the P58 range before the war, and lost 10.5 centavos month on month to close at P61.59 against the greenback on May 29.
The Bangko Sentral ng Pilipinas has limited its foreign exchange market intervention to smoothing out sharp swings that could stoke inflation and potentially de-anchor inflation expectations.
Heated inflation and signs of broadening spillover effects may still prompt the central bank to keep tightening monetary policy, with the key policy rate potentially raised to at least 5.25% from 4.5%.
The central bank's aggressive policy stance may be unnecessary if the May inflation print meets projections, with some economists predicting a headline clip of 7.5% as the lingering effects of elevated global oil prices continue to weigh on housing and utilities inflation.
The Philippine Statistics Authority is set to release the May inflation report on Friday, June 5, with a BusinessWorld poll yielding a median estimate of 7.9% for May inflation.
Despite the potential for further rate hikes, UMVA has gathered that the BSP's tightening cycle may be short-lived, with analysts expecting the central bank to start cutting rates again next year to bolster the economy as oil prices ease.
