THE Philippines’ vulnerability to oil price shocks could see the peso weaken beyond P61 to the dollar if the war in the Middle East persists, the research arm of Japan’s Mitsubishi UFJ Financial Group Inc. (MUFG) said.
“We continue to see the Philippines peso as vulnerable,” MUFG Research said in its April foreign exchange outlook.
“The USD/PHP [exchange rate] could rise above the 61 levels if the Iran and Middle East conflict is sustained, even as our base case forecasts assumes some gradual de-escalation by April,” it added.
The Philippines’ heavy dependence on imported fuel is a key vulnerability, MUFG noted.
The peso has hit several record lows since the US-Israeli war on Iran began on Feb. 28, with three in a row alone beginning last Friday to P60.748:$1 on Tuesday.
It regained some ground on Wednesday ahead of a Holy Week break, closing at P60.1 — a previous all-time low that was hit March 19.
Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. has said that there was no need to intervene with the peso staying around the P59 to P60 per dollar level.
The decline, he added, “seems to help with our current account deficit. It seems to help with our exports. It’s not necessarily a bad thing.”
MUFG Research said the peso could remain above P60:$1 until the third quarter of this year before settling at P59.5:$1 in the final months of 2026.
But if oil prices rise sharply toward $120 to $140 per barrel, the dollar-peso rate could climb to P62.00–P64.00, it said, especially if this is accompanied by a more hawkish Federal Reserve and increased risk aversion.
MUFG Research said risks linked to the Strait of Hormuz were particularly significant for the Philippines, which imports about 95 percent of its crude oil from the Middle East. The country also depends on regional Asian refineries for most of its petroleum product needs, leaving the economy highly exposed to supply disruptions.
Beyond the direct impact on fuel costs, MUFG Research warned that higher oil prices could ripple through other areas, including fertilizer costs, food production, electricity prices, manufacturing and remittances.
“Most crucially if there is a binding energy shortage this will have a significant impact on supply chains and inflation as well,” it added.
Inflation could breach the central bank’s 4.0-percent ceiling if oil prices average $100 per barrel or higher, MUFG Research said, complicating the monetary policy path.
“Given the weak starting point for growth, we think the BSP may try its best to hold off on rate hikes but ultimately we see the risk as biased towards the central bank raising rates at least once this year to contain inflation expectations,” MUFG Research said.
The BSP’s policymaking Monetary Board kept its policy rate unchanged at 4.25 percent during an off-cycle meeting last week while leaving open the possibility of tightening, a move analysts said reflected growing uncertainty surrounding inflation and currency pressures.
The central bank raised its inflation projection for this year and next year to 5.1 percent — above the 2.0- to 4.0-percent target — and 3.8 percent from 3.6 percent and 3.2 percent, respectively.
