THE true pressure on the Philippine peso comes from a combination of external and structural forces-reflecting decades of neglected industrial policy, over-reliance on imported fuel, and a failure to build a robust domestic manufacturing sector, according to an economist.
Analysts have recently pinned the persistent weakening of the Philippine peso on global factors such as the growing expectations of a Federal Reserve rate hike and the higher oil prices amid the renewed tensions in the Middle East.
This time, however, an economist traced back to decades worth of structural neglect in the country to explain why the local currency is vulnerable to foreign exchange volatility.
Ateneo De Manila University (ADMU) economist Ser Percival K. Peña-Reyes explained to the BusinessMirror: ‘The true pressure on the peso comes from a combination of external and structural forces.’
‘We have decades of neglected industrial policy, an over-reliance on imported fuel, and a failure to build a robust domestic manufacturing sector,’ Peña-Reyes told this newspaper.
He said the peso is weak because the economy is ‘fundamentally uncompetitive in producing physical goods.’
Peña-Reyes made this comment after data from the Bankers Association of the Philippines (BAP) showed the peso continued to plummet as it closed at P62.565 against the dollar on Wednesday, 16.5 centavos weaker than its previous finish of P62.40 on Tuesday.
Data also indicated this marks the fourth consecutive record low of the local currency since it started to weaken on August 27 when it closed at P61.888 against the greenback.
With the local currency weakening further to P62.565 per dollar, two analysts unraveled short- and long-term blueprints to help businesses plan ahead and for the government to contain the second-round impact of a weaker peso.
Short-term solutions
John Paolo R. Rivera, Senior Research Fellow at Philippine Institute for Development Studies (PIDS) said the government’s ‘priority should be to contain the second-round effects of a weaker peso and higher oil prices.’
It should particularly keep an eye on the impact on food, transport, and other essential goods, while ‘maintaining credible monetary and fiscal policy,’ he added.
The Bangko Sentral ng Pilipinas (BSP), Rivera said, can continue ‘smoothing excessive volatility without necessarily defending a particular forex rate level.’
For businesses, the Senior Research Fellow at the state think tank said: ‘Importers can strengthen forex risk management through appropriate hedging, better timing of dollar requirements and diversification of suppliers where feasible.’
For exporters and other dollar earning firms, Rivera said they may benefit from a weaker peso in peso terms, ‘but they should also recognize that imported inputs, energy, and financing costs can offset part of that advantage.’
Long-term buffer
Meanwhile, Peña-Reyes said the long-term buffer for the peso requires ‘structural policy shifts.’
For one, he said the Philippines would need to beef up the export sector.
‘Governor Remolona himself admitted that the peso’s slide is difficult to stop without structural improvements in merchandise exports to offset the heavy import bill,’ Peña-Reyes said.
Another long-term solution he presented is to put in place ‘strategic industrial policies.’
‘Investing heavily in local manufacturing, food production, and agriculture reduces the structural need to import everyday commodities, which would naturally fix the trade deficit,’ said Peña-Reyes.
The government must also consider wage and tax reforms.
‘Giving workers higher disposable income through wage adjustments or localized tax relief can create an actual financial surplus that makes personal saving viable,’ added Peña-Reyes.
At a briefing at the Senate last week, BSP Governor Eli M. Remolona Jr. said the exchange rate itself is ‘something very hard to fix’ for a country like the Philippines.
Remolona explained to the Senate Committee on Finance that the country’s outbound shipments are ‘expensive’ and ‘inadequate,’ making it difficult to stop the local currency from further weakening.
‘Our trade deficit is about 13 percent of our GDP [gross domestic product],’ Masyadong mahal ang exports natin; kulang na kulang ang exports natin,’ the central bank governor said at the Development Budget Coordination Committee (DBCC).
‘So mahirap pigilin ang pagbaba ng peso. Pwedeng pigilan para mabagal pero hindi kayang i-fix; hindi pwedeng P60 lang, mauubusan tayo ng reserves, ng dollars,’ added Remolona.
Remolona, who sat in the DBCC briefing as resource person, shared his hopes for the peso.
‘But I still hope our exports will strengthen as it’s really lacking in volume. That’s our challenge here with the exchange rate.’
Trade deficit
The country’s trade deficit widened further in July as imports continued to grow nearly twice as fast as exports, data from the Philippine Statistics Authority (PSA) showed.
The PSA on Friday reported that the country’s trade deficit reached $5.97 billion in July, 34.9 percent higher than the $4.43 billion recorded a year earlier.
It was also the largest deficit since May 2026, when the trade gap reached $6.10 billion.
The wider trade gap came as import payments increased 19.8 percent year-on-year to $14.12 billion from $11.79 billion, while export receipts grew 10.8 percent to $8.15 billion from $7.36 billion. (See: https://businessmirror.com.ph/2026/08/29/july-trade-gap-widens-further-to-5-97b-as-imports-grow-twice-as-fast-as-exports/)
Within the trading session on Wednesday, the peso hit an intraday low of P62.69 against the dollar while its strongest point was seen at P62.4 against the greenback.
Global factors
Rivera said the peso’s drop to a new record low ‘reflects a combination of strong external pressures.’
‘Renewed Middle East tensions have pushed oil prices higher and increased demand for safe-haven dollar assets, while elevated US Treasury yields have made dollar-denominated assets more attractive. The fact that other Asian currencies have also weakened indicates that this is not solely a Philippine-specific development,’ added Rivera.
He said the peso may remain volatile and under pressure in the near term, particularly if oil prices remain elevated, geopolitical tensions persist, and US financial conditions stay tight.
For his part, Jonathan L. Ravelas, senior adviser at Reyes Tacandong and Co., also noted: ‘The USD/PHP weakened to 62.565 as safe-haven demand lifted the greenback after oil prices rose amid renewed Middle East tensions.’
‘Expect the peso to remain under pressure and trade within the 62.300-62.750 range in the near term,’ added Ravelas.