The peso risks sinking to an all-time low of ₱65 against the United States (US) dollar over the next three years if the government maintains its passive stance toward escalating global tensions.

Jonathan Ravelas, senior adviser at Reyes Tacandong & Co., said during a Pandesal Forum on Wednesday, May 20, that the widening current account deficit and surging energy prices—both driven by geopolitical friction—are poised to exacerbate pressure on the local currency.

The peso remains highly vulnerable to global shocks, Ravelas said, noting that without decisive state intervention to mitigate these external spillovers, the currency is likely to sustain deep losses in the near term, having already been battered to historical lows recently.

Ravelas’s projections indicate the peso could weaken to between ₱61 and ₱65 per dollar. He noted that foreign exchange volatility is tightly coupled with intensifying friction between the US and Iran, a conflict that continues to trigger capital flight from emerging-market assets.

He did not, however, discount the efforts made by the Bangko Sentral ng Pilipinas (BSP). Even though the peso is under heavy pressure, Ravelas said the central bank has effectively managed currency swings so far.

Meanwhile, other observers pointed to the underperformance of the peso relative to its peers. MUFG Bank Ltd. revealed that the peso has emerged as the worst-performing currency in Asia since the flare-up of the US-Iran war nearly three months ago.

These headwinds could push the BSP to initiate aggressive tightening of up to eight percent, nearly double the recently hiked benchmark rate of 4.5 percent.

“We’re now back to cautious, defensive, and hopefully not aggressive tightening,” Ravelas said, pointing to the delicate policy stance needed to curb price pressures without causing economic contraction. While a hawkish tone generally tames inflation, it can hurt economic growth.

Ravelas believes the key interest rate could surpass the 6.5 percent peak seen in 2024. “So we’re looking at closer to seven percent or eight percent. So fasten your seatbelts,” Ravelas warned.

This aggressive policy adjustment aims to tackle head-on what Ravelas describes as a "trifecta" of risks: further escalation between the US and Iran, the closure of oil refineries, and spikes in US Treasury yields.

“Containing inflation by raising interest rates allows all of us to think whether to save money or spend. At the same time, it will also help slow down peso depreciation,” Ravelas explained.

Ravelas noted that the risks moving forward would be “more staggering,” given that the country remains heavily dollar-centric even as global interest rates climb.

Furthermore, Ravelas’s macroeconomic assumptions suggest that the Philippine economy is losing steam due to the lingering remnants of governance concerns, now compounded by Middle East shocks. He expects a sobering 2.5 percent output growth in the second quarter—even weaker than the first quarter’s five-year low of 2.8 percent.

Price pressures remain a major concern, having hit a three-year high of 7.2 percent in April. The economist warned that if current trends persist, the country could see inflation peaking at “closer to eight percent or nine percent towards the end of the year,” far higher than the four percent ceiling set by the BSP.

Meanwhile, Ravelas clarified that while signs of stagflation are already surfacing, the Philippines is not yet at a point where growth has turned negative. However, he expressed concern over underemployment, noting that young workers are taking “micro-retirements,” threatening to push the labor market toward a demographic crisis.

Consumer sentiment has also shifted as households grapple with rising prices for gasoline and electricity. “We are now from survival mode in terms of consumers to cautious recovery. We want to spend, but we’re not sure,” Ravelas said.

Consumers have become “selectively picky” in their spending habits as they wait for more stable economic signals, he added.

Despite the current “turbulence,” Ravelas believes a recovery is within reach if the government addresses public spending concerns and improves governance to restore investor confidence.

Following a flood control scandal in 2025, the government moved to constrict its spending, particularly on infrastructure projects. This fiscal squeeze was still acutely felt in the first quarter of 2026, when the government’s infrastructure spending plunged by more than two-fifths to ₱147.8 billion, down from ₱261.8 billion a year earlier.