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Manila Bulletin devider Business devider The Economy devider Stagflation risk mounts for Philippines as political noise batters local currency

Stagflation risk mounts for Philippines as political noise batters local currency

Published May 18, 2026 12:00 am  |  Updated May 16, 2026 02:18 pm

At A Glance

  • Pressures are piling up around the Philippine peso after it hit fresh lows, with MUFG Bank Ltd. warning that the renewed Marcos-Duterte feud and escalating political tensions add another layer of uncertainty that could risk dampening investor confidence.
Analysts from the EIU warn that the Marcos administration faces a “lame duck” period through 2028 due to weak investment spending and “poor” economic outlook. Despite projected interest rate cuts to 3.75 percent, the group expects Vice President Sara Duterte to capitalize on public dissatisfaction surrounding the current administration's economic performance.
Analysts from the EIU warn that the Marcos administration faces a “lame duck” period through 2028 due to weak investment spending and “poor” economic outlook. Despite projected interest rate cuts to 3.75 percent, the group expects Vice President Sara Duterte to capitalize on public dissatisfaction surrounding the current administration's economic performance.
The peso’s descent to unprecedented lows is facing a volatile new headwind, with MUFG Bank Ltd. warning that an escalating political feud between the nation’s two most powerful dynasties threatens to upend investor confidence.
The Japanese financial institution said that the deepening rift between President Ferdinand Marcos Jr. and Vice President Sara Duterte has added a layer of domestic instability just as the economic outlook darkens.
“For the peso, the concern is that political noise may reduce investor confidence just as the BSP [Bangko Sentral ng Pilipinas] faces pressure to remain hawkish despite a weaker growth profile,” the MUFG Bank wrote in a commentary published last May 15..
The political friction, which saw the House of Representatives vote to impeach Duterte for a second time, has shifted to the Senate for an impending trial.
A conviction in the upper chamber would bar the Vice President from seeking future office, carrying immense consequence given her standing as a primary contender for the 2028 presidential race.
According to the lender, mixing the growing political divide with the domestic economy that is already grappling with stagflationary pressure creates an unfavorable environment for the peso.
Last Friday, the peso plunged to its weakest level on record for a second consecutive day at ₱61.721 per dollar, as persistent inflation in the United States (US) fueled expectations that interest rates will remain elevated, dampening appetite for emerging-market assets.
MUFG noted that the “macro backdrop has also deteriorated,” specifically pointing to a sharp spike in consumer prices. April inflation surged to a three-year high of 7.2 percent, driven by massive price movements in food and non-alcoholic beverages, transport, and utilities.
Exacerbating this is the anemic gross domestic product (GDP) growth in the first quarter, which slumped to a five-year low of 2.8 percent. This fell far short of the government’s minimum target of five percent.
According to the International Monetary Fund (IMF), the first-quarter reading will be “incorporated” into its updated projections, set for release in July.
Last month, the Washington-based multilateral lender slashed its growth forecast for the Philippines to 4.1 percent from the previous 5.6 percent, citing mounting stagflationary pressures caused by the Middle East war.
Both domestic and external concerns have placed the Bangko Sentral ng Pilipinas (BSP) in a shaky position.
Unlike other regional central banks that may have more room to maneuver, the BSP’s policy credibility is being tested by sticky prices.
“Despite the stagflationary backdrop, the BSP is likely to prioritize containing runaway inflation, implying further rate hikes even at the expense of near-term growth,” MUFG said. From the get-go, stabilizing prices has been the central bank’s main priority.
Under the Japanese lender’s base case scenario, where the dust in the Middle East war settles in May, the BSP could proceed with selective tightening. The key interest rate currently stands at 4.5 percent.
“However, under a more adverse scenario where Brent stays elevated into the third quarter, policy tightening would likely become more widespread across the region,” MUFG said, with the Philippines and India seen pursuing tighter policy moves.

Related Tags

MUFG Global Markets Research PESO International Monetary Fund (IMF) Bangko Sentral ng Pilipinas (BSP) GDP Middle East Inflation
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