This is the question of the hour, fueled by the domestic financial market’s sustained downswing.

Yes, Virginia, the financial market is experiencing significant volatility, with upward pressure expected on both the local currency and inflation. The peso is flirting with the ₱62 mark, inflamed by political discord and the rising international price of crude oil.

The current state, triggered by the ongoing conflict in the Middle East, is altering our very lifestyle. It calls to mind these lines: “I know it’s hard for you… To change your way of life,” from the song “Where do we go from here.” This closing track of the Chicago album took its inspiration from the remarks of renowned CBS anchor Walter Cronkite during the 1969 moon landing.

Our economy is in a delicate condition, weighed down by a confluence of developments: a worsening geopolitical situation and, domestically, the turbulence of the political arena—from the exhilarating “catch me if you can” saga of Zaldy Co to the looming impeachment of the Vice President.

Yes, Virginia, the grim forecast is for the local currency to cross the ₱62 threshold. Further weakening is on the horizon, with ₱65 not far-fetched, depending on the resolution of the Middle East conflict.

As I write this, the peso is trading 20 centavos lower, opening at ₱61.651 from a weighted average of ₱61.506, hitting a high of ₱61.75 during early morning trade. With the long weekend approaching, banks are expected to maintain an overbought position, which could further dampen the peso’s value.

Inflation, meanwhile, could soar to five percent this April from 4.1 percent in March, driven by increasing logistics costs. My favorite certified financial analyst, Jonas Ravelas, points to sustained pressure from food prices—particularly meat and rice—and higher transport costs.

The slide of the peso against the greenback is anchored on several factors, but front and center is the uncertainty surrounding the Middle East war.

Risk aversion is also dragging the peso down, a sentiment mirrored by the downward trend in the Philippine Stock Exchange index as investors scramble for safe havens.

As Roland Avante, president and chief executive officer of Philippine Business Bank, puts it:

“Our economy is import-oil dependent. The lingering Middle East conflict is pushing crude oil prices above $100, which will require more dollars to fund our oil purchases.”

Further weighing down the peso is the government’s latest decision to import rice, our staple food, as a buffer for an agricultural sector expected to suffer from the effects of El Niño.

The move by monetary authorities to increase the key interest rate by 25 basis points to 4.5 percent—intended to tame inflation and stabilize the peso—has been virtually futile.

Taming externally induced inflation without choking a fragile domestic economy is the perennial challenge expected of the BSP.

Paradoxically, instead of quashing the pressure, the exchange rate depreciated further—from ₱60.13 the day before the hike to between ₱60.50 and ₱61.30 immediately after.

The cautious stance of investors is also reflected in the elevated risk premium between Philippine 10-year bonds and US 10-year Treasuries. This spread has widened beyond the normal 125 to 150 basis points to 248 basis points, indicating the additional yield investors demand for holding Philippine debt over the “risk-free” US benchmark. This high premium is a function of exchange rate risk and the country’s sovereign credit risk, which, while still investment grade, faces emerging negative pressures that have dented investor confidence.

Now, where do we go from here?

We are navigating a delicate, challenging situation dominated by an energy-induced economic crisis and heightening geopolitical tension. From my perspective—and everyone I talk to bears this out—for the markets and for us to surmount these challenges, the path forward must focus on emergency power management and strict energy efficiency.

The solutions must not be quick fixes; they must be analytically comprehensive and built for the long term.