Until a clearer signal emerges from the temporary military truce between the United States (US) and Iran, the Philippine peso stands to sustain additional bruises from the geopolitical tensions that have already battered it, according to Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC).

A hawkish policy stance generally props up the local currency. OCBC, however, noted that the central bank’s tightening may have limited impact given the local economy’s vulnerability to energy disruptions.

“While the BSP did hike last week, the foreign exchange (forex) follow-through may still be tempered by the Philippines’ vulnerability to imported energy shocks and the broader risk backdrop,” OCBC said in an April 27 report.

Last week, Asian currencies were on shaky footing. According to data from OCBC, the peso, Indonesian rupiah, South Korean won, and Thai baht led the losses, driven by the rebound in oil prices due to the continued military standoff in the Middle East.

“Until we get some clarity on the ceasefire agreement, the peso may have to bear the brunt of the hit,” OCBC warned, noting that the peso’s weakness was largely driven by external shocks, with uncertainties tied to the US-Iran ceasefire still lingering.

To date, both the US and Iran camps have yet to hold another round of talks. This could leave markets fatigued by the protracted tensions, risking prolonged elevated energy costs.

OCBC flagged the Philippines’ risk of being caught in stagflation, a macroeconomic condition in which growth stagnates while consumer prices surge briskly. It noted that policy decisions face high stakes given the intensifying trade-offs between gross domestic product (GDP) growth and inflation.

BSP Governor Eli M. Remolona Jr. last week said risks of de-anchoring inflation expectations are becoming more pronounced.

In its latest monetary policy meeting, the BSP revised upward its inflation assumptions for 2026 and 2027 from 5.1 percent and 3.8 percent to 6.3 percent and 4.3 percent, respectively. Both projections are higher than the four percent ceiling set by the central bank.

If the BSP’s 2026 headline inflation forecast is achieved, it would be a 28-year high since the 8.2 percent recorded at the height of the global financial crisis (GFC) in 2008.

“Our assessment shows that the Philippine economy is most vulnerable to stagflation risks characterized by accelerating inflation and decelerating growth,” OCBC said.

The Singaporean bank also noted that Fitch Ratings recently downgraded its outlook on the Philippine sovereign debt position to ‘negative’ from ‘stable.’

Fitch’s outlook change made it clear that the Philippines now faces “slower public investment, higher exposure to energy shocks, rising inflation, and uncertain capital expenditure (capex) recovery, and risk to medium-term growth.”

“These challenges could narrow the country’s GDP growth outperformance relative to peers, amid higher post-pandemic government debt and a gradual and sustained deterioration in its external finance position,” OCBC said.