Philippine Peso: Policy Lag Keeps Currency Underperforming – BBH

The Philippine peso remained under pressure following the central bank's rate hike, underperforming most Asian currencies. Brown Brothers Harriman (BBH) analyst Elias Haddad noted that despite the Bangko Sentral ng Pilipinas (BSP) raising rates for a third consecutive time by 25 basis points to 5.00%, the pace of policy tightening still lags behind actual conditions and has failed to provide effective support for the peso. Meanwhile, broad US dollar strength and persistent market risk aversion continued to weigh on Asian currencies, with the peso briefly falling through the 60.7 level against the dollar, approaching its historical low.

**Policy Pace vs. Market Expectations**

The BSP's rate hike was broadly in line with mainstream market expectations. According to a prior Bloomberg survey, the majority of the 22 analysts polled expected a 25-basis-point hike, with only four anticipating no change. However, BBH believes this gradual tightening pace has failed to close the interest rate differential between the Philippines and major economies, leaving the peso in a relatively weak position among Asian currencies. Following the rate decision, the peso did not receive any meaningful boost and instead extended its decline after a period of consolidation.

**External Pressures Compound Peso Weakness**

The peso's softness stems not only from domestic policy factors but also from an unfavorable external environment. Escalating geopolitical tensions in the Middle East, including incidents involving vessels near the Strait of Hormuz, have fueled risk aversion and driven capital flows toward the US dollar. In this context, Asian currencies have come under broad pressure, with the peso suffering more pronounced losses given the lack of sufficient domestic policy support. Traders had already observed the peso weakening after a sideways move ahead of the policy meeting, as markets awaited the decision.

**Near-Term Outlook Remains Cautious**

Overall, the BSP's current policy stance has yet to reverse the peso's weak trajectory. BBH's analysis suggests that unless the central bank adopts more aggressive tightening measures or signals a stronger commitment, the peso is likely to continue trading near multi-year lows in the near term, making it difficult to quickly narrow the performance gap with other Asian currencies.