USD/PHP traded just below its March 30 record high of 63.8300, as higher crude oil prices weighed on the peso despite a tighter policy move by Bangko Sentral ng Pilipinas (BSP). BSP raised its policy rate by 25 bps to 4.50%, citing a worsening inflation outlook linked to conflict in the Middle East.
About half of analysts polled by Bloomberg expected a 25 bps rise, while the rest forecast no change. The move was BSP’s first rate increase since October 2023, after an easing phase that delivered 225 bps of cuts over the past 20 months.
BSP Governor Eli Remolona said the decision was not unanimous and that a 50 bps increase was also considered. He indicated further rate rises may follow.
BSP now forecasts average headline inflation will exceed its 4.0% ceiling in both 2026 and 2027. The report notes the article was produced with the help of an AI tool and checked by an editor.
The central bank’s decision to raise rates to 4.50% is being ignored. With Brent crude recently hitting a two-year high of $112 per barrel amid ongoing Middle East tensions, the market is focused on the Philippines’ high import bill. We are seeing the USD/PHP pair test the 63.83 record high from last month as a direct result.
We believe the central bank is now playing catch-up after an aggressive easing cycle that ended in late 2025. Their own projections now show inflation breaking the 4.0% ceiling for both this year and next, suggesting this small 25 basis point hike will not be enough to support the currency. The market is likely anticipating more forceful action will be needed down the line.
The problem is compounded by a strong US dollar, as the latest American inflation report came in higher than expected at 3.6%, pushing back any hope of a Federal Reserve rate cut. This global environment makes it difficult for emerging market currencies like the peso to find any support. For traders, this means the peso’s weakness is not just a local story.
Given the conflict between central bank policy and powerful external factors, we expect volatility to rise significantly. Implied volatility on three-month USD/PHP options has already climbed to 7.9%, its highest level this year, indicating traders are preparing for sharp moves. Strategies that profit from this uncertainty, such as buying options, should be considered.
The path of least resistance for USD/PHP seems to be upward, potentially breaking through the 64.00 psychological barrier in the coming weeks. As the Philippines imports nearly all of its oil, a sustained period of high energy prices will continue to pressure its trade balance and the peso. We see buying call options as a prudent way to position for further peso depreciation while limiting potential downside.
