A DECLINE in global oil prices has done little to ease pressure on the peso as weaknesses in the country's external accounts continue to weigh on the currency, ANZ Research said.
"The Middle East conflict may be reaching closure and oil prices fell in June, but this has not provided much relief to the PHP which is nearing all-time low against the USD," ANZ said in its latest Asia Macro Weekly report.
The bank said the peso's continued weakness suggested that it was now being driven less by temporary oil price shocks and more by persistent external imbalances, including a widening trade deficit, slowing investment inflows and a stronger dollar.
ANZ expects the peso to weaken to P63:$1 before gradually recovering to P61.5 by end-2027 and P60.5 by 2028.
The peso has mostly traded above the P61:$1 level since April and remains under sustained pressure as deteriorating terms of trade and lingering concerns over domestic economic growth continue to weigh on investor sentiment.
While the Bangko Sentral ng Pilipinas (BSP) has intervened to curb excessive volatility, ANZ noted that these contributed to a decline in the country's gross international reserves, which fell to $73.8 billion in April from $81.8 billion at the end of 2025.
It said the Philippines' external position had deteriorated further as the merchandise trade deficit widened to $6 billion in April, comparable to levels seen during the Russia-Ukraine war in 2022.
Despite expectations that tensions between the United States and Iran could eventually normalize global oil supply, ANZ said lower oil prices were unlikely to significantly narrow the trade gap in the near term.
“Many economies are expected to replenish oil inventories that have been drawn down since March 2026,” it said.
“This means oil prices are unlikely to fall sharply from here. Hence, we expect the trade deficit to remain elevated in the coming months,” it added.
While external trade remains the biggest drag, ANZ said the Philippines continued to benefit from resilient structural sources of foreign exchange.
The business process outsourcing (BPO) industry has become an increasingly important contributor to the economy and receipts are now broadly comparable with remittances from overseas Filipino workers.
ANZ said a resilient US labor market and easing geopolitical tensions in the Middle East should help keep remittance inflows steady during the second half of the year.
However, the bank said these inflows were no longer sufficient to fully offset the goods trade deficit.
"We expect remittance inflows to remain steady in the second half of the year,” ANZ said.
“Together with resilient BPO revenues, these structural inflows should partially offset the widening trade deficit, although it would not be sufficient to fully counterbalance the underlying external pressures on the currency.”
ANZ also sees additional downside risks to the peso as markets increasingly price in the possibility of further US Federal Reserve rate hikes, which have strengthened the dollar and triggered capital outflows from emerging markets.
“Financial markets are now pricing in the possibility of a Fed rate hike, leading to a stronger USD and pressure on the PHP,” ANZ said.
“Though the BSP has already hiked rates, it was not sufficient to turn around the PHP’s fortunes.”
It said that “further rate hikes will be needed given the challenging inflation outlook, which will slow growth. We see further downside risk to the PHP.”
The BSP has raised interest rates twice this year and has indicated that more could follow given inflation risks. NIÑA MYKA PAULINE ARCEO
