Philippine Peso: Inflation and politics weigh on PHP against US Dollar – ING

ING economists Deepali Bhargava and Lynn Song have cautioned that inflation risks are on the rise for the Philippine Peso (PHP), fueled by a resurgence in oil prices and anticipation of a potent El Niño that could trigger a surge in food prices. The factors contributing to this inflationary pressure include the surge in global rice and fertilizer prices.

Despite projecting a 50 basis points increase in interest rates for 2026, they underscore political instability as a significant downside risk that could impede reforms and impede economic growth. Deepali Bhargava stated, "Upside inflation risks are increasing again, driven by the recovery in oil prices and expectations of a strong El Niño later this year which could trigger a food inflation shock across import-dependent economies like the Philippines."

Furthermore, Lynn Song noted, "Global rice prices are increasing as countries move to secure supplies, while fertiliser prices are likely to rebound from recent lows amid renewed US-Iran tensions and supply disruption." The persistent inflation pressures are expected to underpin a hawkish monetary policy, backing the forecast of another 50bp tightening in 2026.

Political uncertainty, however, remains a key downside risk, potentially stalling reform initiatives, impeding growth, and exerting downward pressure on the peso. The GBP/USD currency pair has experienced losses on Thursday, dipping back into the 1.3450 zone. This decline follows two consecutive daily advances and aligns with heightened concerns regarding the Middle East.

Similarly, the EUR/USD pair has shown signs of renewed downside pressure, testing the low 1.1500s in the latter stages of Thursday's trading session. This shift downwards is attributed to renewed bid sentiment in the US Dollar, as fresh Middle Eastern developments generate optimism. In the forthcoming Friday session, US Non-Farm Payrolls (NFP) data will be the focal point of attention.

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