Peso depreciation, high inflation a double whammy across sectors — economist

Metro Manila, Philippines – The substantial decline of the peso against the dollar impacts across sectors because of its effect on the rate by which prices of goods and services increase, an economist said. 

In an interview with NewsWatch Plus, economist Emmanuel Leyco said families of overseas Filipino workers (OFWs) are among those benefiting from the depreciating peso as they get to exchange more pesos per dollar sent home.

However, he cautioned that higher prices could easily offset the benefits.

“When inflation kicks in, whatever advantage they experience in the beginning will be washed out,” he said. 

For people reliant on remittances like Carlota Cabuhat, 52, a weaker peso no longer offers relief because the peso can only buy fewer items with the spiraling inflation.

“Sabihin nating malaki nga ang palitan, lugi rin naman sa mahal ng bilihin ngayon,” she said.

(Translation: Let’s say the exchange rate is high, we still end up losing because of higher prices.)

Cabuhat’s husband has been on OFW for over three decades. She said the household budget could tie the family over when the peso was stronger. 

A budget of ₱2,000 to ₱3,000, she said, could easily pack two boxes of groceries, but the current ₱5,000 budget could barely fill up a box because of inflation.

The peso breached the ₱64-per-dollar mark after settling at P64.17 at the close on Oct. 27, marking its ninth record low this month, data from the Bankers Association of the Philippines showed.

Ana Mariz Eleuterio, an employee at a remittance center, noted an up to 40 percent increase in customers exchanging dollars for pesos since it hit ₱63:$1. The local unit traded in this range for 12 days after finishing at ₱63.06 on Oct. 15. 

When the peso depreciated further against the dollar, Eleuterio said the branch in Sampaloc, Manila ran out of bills within three hours, as customers rushed to change their dollars. 

Doubled-edged sword

Leyco attributed the peso depreciation to strong demand for dollars and tensions in the Middle East, which began to weigh on the market in February. 

For another money changer, branch manager Mary Glen said there was a spike in customers buying dollars.

“Gusto nilang mag-hold sila ng dollar,” she said. “Siguro sa possibilities na tataas ulit.”

(Translation: They want to hold on to the dollar. Perhaps they see possibilities that the rate will rise again)

Meanwhile, consumers are taking the brunt of a weak peso. The inflation rate has accelerated to 7.2 percent in September, the Philippine Statistics Authority reported. 

Leyco said a weakening currency, coupled with rising inflation, places greater strain on consumers, particularly minimum wage earners, because of higher import costs. 

Import-dependent countries like the Philippines may see its impact on higher transportation costs and electricity and fuel prices, he added. 

The total value of imported goods reached $12.96 billion in August, according to the PSA, roughly ₱825.85 billion in the current exchange rate. 

Considering that manufacturers sourcing raw materials from abroad are at risk of major losses, there is a possibility that they may cut the workforce or even close shop, Leyco said, adding that others may opt to adjust quality and quantity to survive. 

“However, there is a risk. If the prices are too high, consumers will no longer support that. Some consumers will go to substitutes,” he said. 

Exporters, on the other hand, benefit from a weaker peso as they earn more abroad. Leyco said this may be unsustainable as it does not guarantee a more competitive product given a number of factors in the foreign market. 

In August 2026, the country’s merchandise exports hit a 35-year high of $9.11 billion or around ₱540.5 billion. 

Main culprit

The Bangko Sentral ng Pilipinas (BSP), which has a target inflation range to temper prices, raised its benchmark interest rate by 50 basis points to 5.50 percent on Oct. 22, marking the fourth straight increase this year. 

BSP Governor Eli Remolona Jr. said the move was a buffer to the economy against inflation and the potential impact of severe El Niño, and not to prop the peso up. 

However, Leyco cautioned against raising interest rates to match rising prices, noting that such a move could burden consumers and small and medium enterprises that rely on credit.

“If credit becomes very, very expensive, you can expect that there will be more credit defaults,” he stated.

When interest rates are high, borrowing costs become more expensive as lenders try to compensate for the decline in the purchasing power of money, according to the central bank.

“The main culprit here is inflation,” Leyco said, noting that the government can focus on cushioning the impact of a stronger dollar given a limited ability to support the peso.

“I think the most logical option now is to reduce prices of oil by expanding the suspension of excise tax,” he added, noting that the tax relief should also extend to gasoline and diesel. 

Asked about his outlook for the peso, Leyco said the currency is likely to continue depreciating amid sustained demand for the dollar. 

“I hate to imagine what is going to happen, but basically, if the peso continues to depreciate, we will see higher inflation in the country and that will be terrible,” he said.

NewsWatch Plus intern Alliah Lyn Reyes contributed to this report.