Despite United States (US) President Donald Trump’s surprising decision to raise tariffs by three percentage points on Philippine exports, the foreign exchange (forex) market showed minimal concern, according to Dutch financial giant ING.

“While Trump’s tariff hike on the Philippines—from 17 percent to 20 percent—was unexpected, the foreign exchange (forex) market largely shrugged off the news,” Deepali Bhargava, regional head of research at ING Asia-Pacific, said in a July 14 report. This came despite the Philippine peso’s underperformance against the US dollar in June.

According to ING, the local currency depreciated by one percent against the US dollar last month. Following Trump’s decision to hike the tariffs on Philippine exports, ING noted that the forex market might be unmoved.

The spot rate when the report was published was ₱56.49:$1. The peso had gradually weakened to the ₱57:$1 level over the week, but on Tuesday, July 22, it appeared to be regaining strength against the US dollar, testing the stronger ₱56:$1 level.

“While Philippine peso may benefit from US dollar weakness, we think real effective exchange rate (REER) overvaluation and fiscal deficit concerns will continue to remain headwinds,” Bhargava said.

An increase in the REER—which measures a currency’s value against a basket of other currencies—signals that Philippine exports are becoming less competitive as they get more expensive, while imports become cheaper.

Meanwhile, the country’s budget deficit reached ₱523.9 billion from January to May, representing a 29.4 percent increase from the same period last year. According to the Bureau of the Treasury (BTr), this was due to the government's increased spending on infrastructure and social programs to drive inclusive growth.

To recall, the Philippines’ fiscal deficit was raised alongside the downward adjustment of the gross domestic product (GDP) target.

During the most recent Development Budget Coordination Committee (DBCC) meeting, the government’s fiscal deficit target for the year was raised to P1.56 trillion, equivalent to 5.5 percent of GDP, from P1.54 trillion or 5.3 percent of GDP.

When it comes to consumer prices, ING said, “Falling rice and oil prices, along with easing currency pressures, should keep CPI [consumer price index] inflation contained.”

Citing the softer inflation and a potential growth slowdown, Bhargava has retained its forecast that the Bangko Sentral ng Pilipinas (BSP) will deliver two additional 25-basis point (bps) cuts by year-end.

If realized, the key borrowing cost could fall to 4.75 percent from the current 5.25 percent. BSP Governor Eli M. Remolona Jr. said earlier that the policy-setting Monetary Board (MB) may reduce rates “twice more” depending on the economic data.

Consumer price increases climbed slightly in June to 1.4 percent from May’s nearly six-year low of 1.3 percent. A spike in inflation was tempered by a substantial drop in rice prices, which fell to their lowest in three decades, or since 1995 levels. June inflation fell within the BSP forecast range of 1.1 to 1.9 percent for the month, though it remained below the government’s retained target band of two to four percent.

In the first quarter of the year, GDP expanded by a modest 5.4 percent, slightly faster than the 5.3 percent in the previous quarter, but lower than the 5.7 percent in the same period in 2024. It also fell significantly short of the government’s original growth target of six to eight percent for 2025.

The DBCC had slashed the country’s 2025 growth target to between 5.5 percent and 6.5 percent, citing increased external uncertainties.