While the Bangko Sentral ng Pilipinas (BSP) sees no need just yet to defend the Philippine peso amid global oil price risks, the plunging local currency may push monetary authorities into more cautious policy easing moving forward, economists said.

Japanese financial giant MUFG Bank Ltd. said that the BSP would likely kick-off an aggressive intervention to the foreign exchange (forex) rate if the peso continues to abruptly weaken to the ₱59:$1 level, as the central bank is concerned of the pass-through effect of currency depreciation.

“We think there’s a good chance the BSP will start to intervene more aggressively if Philippine peso weakness continues unabated towards the ₱58-₱59 levels within a short space of time,” MUFG Global Markets Research senior currency analyst Michael Wan said in a commentary published on Friday, June 20.

This came after BSP Governor Eli M. Remolona Jr. earlier asserted that aggressively intervening only to maintain the United States (US) dollar-peso exchange rate is “futile.” But he followed it with an assurance that if the massive peso devaluation prolongs, the central bank might step in.

As of Thursday, June 19, the market continued to witness further decline in the value of the peso against the “safe haven” US dollar, falling to ₱57.45:$1 from ₱55 levels a week ago. This downward trend for the local currency—a 1.7-percent drop since it began falling—was first seen on Friday last week, following Israel’s airstrikes on Iran.

Despite this trend, the Tokyo-based bank believes that peso would still strengthen at trade to ₱54.5 against the greenback by the end of 2025, driven by its “expectations of a weaker US dollar, coupled with domestic positives such as the surge in FDI [foreign direct investment] approvals, and lower domestic rice prices and manageable inflation.”

Meanwhile, think tank Oxford Economics said that “while the BSP does not explicitly use the policy rate to influence the exchange rate, the pass-through effect of a weaker peso on inflation remains a concern.”

Pass-through refers to a massive peso drop that results in a price hike in consumer prices. Pass-through now is “very different” from before, Remolona earlier said.

As such, Oxford Economics lead economist Sunny Liu believes that the central bank is “likely to adopt a more cautious approach while maintaining an easing bias. We expect the next 25-bp [basis point] rate cut to take place in the fourth quarter.”

As expected by the market, the BSP on Thursday reduced the key interest rate by a quarter point to 5.25 percent from 5.5 percent previously. Remolona hinted that the central bank may proceed to cutting “twice more” or not at all depending on the incoming economic data.

For now, Remolona sees that “things are on track,” a sign that BSP may deliver another 25-bp cut by year-end.

The latest cut decided by the policy-setting Monetary Board (MB) had taken into account the moderation in the global economy due to the US-imposed trade policy and the escalating conflict in the Middle East.

Remolona said that these external developments would drag growth in the Philippines, asserting in particular that “a rise in oil prices, electricity rate adjustments, and higher rice tariffs, would add to inflationary pressures.”

It does not help inflation expectations that, as Oxford Economics pointed out, “the Philippines is heavily reliant on fuel imports.”

The think tank had projected a worst-case scenario that world oil prices could jump to $120 per barrel by the third quarter. As tensions between Israel and Iran intensify, Brent crude currently trades at about $77 per barrel, climbing from $64 per barrel in May, it noted.

As for MUFG, its estimates “suggest that every $10 per barrel rise in oil prices boosts the Philippines’ current account deficit by 0.4 percent of GDP [gross domestic product],” putting pressure on the peso.

“With the Philippines current account deficit already quite large at 3.5 percent of GDP in 2025 due to infrastructure and capital goods import needs, this deficit could easily rise above four percent of GDP if oil prices were to rise further, with the change at the margin being the external oil price shock, and as such making it more difficult to finance the current account deficit even with our expectation of FDI increases,” MUFG warned.

Nonetheless, MUFG believes that “from a policy rate perspective, we think that the BSP continues to be biased towards rate cuts at current oil price levels.”

As such, the Japanese bank expects the BSP to reduce interest rates by 50 more bps, even as the central bank “could be more constrained if oil prices rise closer to $90 per barrel and also coupled with sharp Philippine peso depreciation.”

“Our estimates suggest that every $10-per-barrel rise in oil prices boosts inflation in the Philippines directly by around 0.6 percentage point (ppt), with inflation likely to average about 3.5 percent with oil at $90 per barrel,” MUFG said.

Singapore-based United Overseas Bank (UOB) has a more dovish policy outlook, standing by its previous forecasts of two additional cuts in the second half of the year.

“While economic growth and inflation prospects remain subject to downside risks particularly due to tariff uncertainty and geopolitical tensions, we keep our BSP rate forecasts for now,” UOB senior economist Julia Goh and economist Loke Siew Ting said in a June 19 commentary.

If realized, these anticipated reductions would bring the policy rate down to 4.75 percent. This would also translate to a 1.75-percent cumulative cut since the central bank began its easing cycle in August last year.

The MB has three meetings left this year—scheduled for Aug. 28, Oct. 9, and Dec. 11.

But the UOB economists pointed to “some changes in the [monetary policy decision] statement that indicate the BSP is likely on a more moderate easing pace going into the second half of 2025.”

For instance, the central bank “added for the first time in the statement that the MB will also continue to assess the impact of prior monetary policy adjustments,” UOB noted.

“During post-meeting briefing, the BSP Governor highlighted that inflation remains the central bank’s priority in deciding future monetary policy stance,” it added.

Still, “higher positive real interest rates, which are at an almost 10-year high, also indicate that the central bank has plenty of room to ease in the near term despite a narrowing interest rate differential with US rates,” the Singaporean bank said.