The peso dropped to the ₱57 level against the United States (US) dollar on Thursday morning, June 19, ahead of the expected Bangko Sentral ng Pilipinas (BSP) interest rate cut later in the day.

According to the Bankers Association of the Philippines (BAP), the local currency opened at ₱57.1, weaker by 12 centavos than Wednesday’s close of ₱56.98.

As of 12 noon, the peso fell to a low of ₱57.41.

“Higher oil prices is Philippine peso-negative,” said Deepali Bhargava, Asia-Pacific regional research head at Dutch financial giant ING, in a June 18 report.

ING projected the peso spot trade to reach ₱57.04:$1, even as it could appreciate to ₱56 over the next month, ₱56.5 over the next quarter, ₱56 over the next semester, and then return to the ₱57 level over the next 12 months.

“The Philippine peso underperformed the region last month and fell 0.7 percent against the US dollar. The recent spike above ₱56 has been driven by higher oil prices as the Philippines is one of the worst impacted given it’s a large oil importer,” ING said.

The peso dropped to the ₱56 level just last Friday, June 13, after Israel attacked Iran.

“Our estimates indicate that a 10-percent increase in oil prices can add 0.25 percent of GDP [gross domestic product] to the current account deficit, which will be a negative for the currency in the near term,” ING added.

According to ING, “from a valuation perspective, the Philippine peso remains overvalued on a real effective exchange rate basis with the weakest current account balance in the region.”

Singapore’s DBS Bank Ltd. had also flagged the Philippines’ wider deficit in its current account, or net dollar earnings.

The latest Bangko Sentral ng Pilipinas (BSP) data released last week showed that the Philippines’ current account deficit doubled to $4.2 billion in the first quarter of 2025 from $2.1 billion a year ago, as goods imports growth outpaced the rise in exports.

The Philippines is a net importer of the goods it consumes. Economists are bracing for a surge of products coming from China—already the top source of Philippine imports for many years now—as Chinese exporters look for alternative markets other than the US amid renewed trade tensions between Beijing and Washington.

BSP data showed that the current account deficit’s share to GDP climbed to 3.7 percent at end-March from 1.9 percent a year ago.

The BSP had projected the current account deficit would further widen to $19.8 billion, or 3.9 percent of GDP, this year.

Last year, the deficit stood at $17.5 billion, or 3.8 percent of GDP—larger than the $12.4 billion, or 2.8 percent of GDP, in 2023.

In a June 19 report, Japanese financial giant MUFG Bank Ltd. noted that “Asian currencies have broadly extended their losses against the US dollar [last Wednesday], with the Philippine peso leading regional declines, falling 0.5 percent on the day and nearly two percent since Middle East tensions escalated last Friday,” referring to the tensions between Israel and Iran.

For ING, its projected 25-basis-point (bp) cut in key interest rates, to lower the BSP’s policy rate to 5.25 percent from the current 5.5 percent, “could add to the Philippine peso’s downside.”

“Moreover, equity markets remain weak with outflows from FIIs [foreign institutional investors] persisting since November 2024,” ING added.

MUFG Global Markets Research senior currency analyst Lloyd Chan noted that BSP Governor Eli M. Remolona Jr. had stated that “the central bank will tolerate currency weakness, noting that intervention will be futile amid global risk aversion.”

MUFG is also looking forward to the market’s widely anticipated 25-bp BSP rate cut, which Chan noted would be “supported by moderating inflation.”

In a separate June 19 report, DBS said that the latest interest rate reduction, which brings to 125 bps the cumulative cuts since the BSP started its monetary easing cycle in August last year, “is unlikely to be an easy decision, considering peso’s recent underperformance, concurrent to a lift in oil prices.”

“The Philippine peso slipped to a two-month low this month, depreciating [about] two percent against the dollar and is one of the regional underperformers this year,” DBS noted.

“Preferring to preserve their FX [foreign exchange] reserve stock, Governor Remolona said it was futile to intervene strongly in the face of weak risk sentiments benefiting the dollar. Focus, instead, is likely to be on domestic considerations, which lay the ground for further rate reductions,” the Singaporean bank further noted.

With a “significant” real rate buffer on the back of slower inflation, plus global uncertainties on the horizon, DBS said the BSP would likely cut interest rates again in the third quarter, or during the Monetary Board’s (MB) Aug. 28 policy-setting meeting, to bring the policy rate down to a “neutral” level of five percent.