There’s no doubt the forthcoming visit of two top United States (US) officials—Defense Secretary Pete Hegseth and US Secretary of State Marco Rubio—speaks volume of the relationship with its oldest Asian partner and a non-North Atlantic Treaty Organization (NATO) ally.
Their visit, which Philippine Ambassador to the US Jose Manuel Romualdez described as a demonstration of the close ties between the two countries, comes at a time when key players in the marketplace are weighing the effects of the reciprocal tariff imposition on the country’s growth potential.
In my conversations with Roland Avante, Philippine Business Bank president, and certified technical analyst Jonathan “Jonas” Ravelas, this trade or tariff war is bringing a lot of uncertainty not only on the Philippine market but also globally.
Such could lead to “competitive devaluation.”
This refers to two or more countries competing to improve their position in international markets. Under this scenario, each country tries to devalue its currency to be more competitive, to boost exports and attract foreign investment.
As I write, the peso dipped by 30 centavos to a weighted average rate of ₱57.699 Wednesday, the lowest in three weeks, from ₱57.399 the day prior, due to negative sentiments on the US sweeping tariff.
Yes Virginia, the peso outlook is foggy, with dark trade clouds hovering in the horizon. The local currency could weaken further vis-à-vis the US dollar and could breach the ₱61-mark.
Though the tariff war is not intended to target the Philippines and other emerging countries, it is, however, apparent the country is caught in a crossfire. Directly, we are not affected by the tariffs, simply because the country does not import much from the US.
The secondary effect of the “distrumption,” however, is a major concern. We are already feeling the pressure on the value of the peso against the US dollar, the movement in equities and interest rates.
Over the past weeks, the local currency was holding its fort, trading within the ₱57.45 range, but lost its steam, flirting towards the ₱58-level.
It, too, will have a cascading effect on the inflation rate and interest rates. Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona has already telegraphed the possibility of reducing the key overnight interest rate by 25 basis points in April, which will bring the interest rate differential to a one-percent comfortable level.
Moving forward, however, it will be an altogether different narrative.
Future interest rate cuts after April 10 are unclear because of the pressure on the peso. The decision of the US Federal Reserve is an important factor. For now, there’s no clear guidance coming from the US Fed on its monetary policy path.
From what I hear along the banking corridors, the bet is on that there’ll be no change in the coming months.
This, in turn, could weigh down on the programmed borrowings of the national government to bridge its budgetary gap, as well as its plan to reduce debt service payments.
For now, it’s a bit difficult to predict how the Trump policy will play out. And as such, the Philippine economy will just chug along and will be reactive to how the global economy and international markets move.
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