The peso has finally breached P60 to the dollar. This is a historic first, but it’s not exactly surprising.

For weeks, the Bangko Sentral ng Pilipinas (BSP) had been selling dollars from its reserves to keep the exchange rate from crossing this threshold. But like King Canute, the BSP can hold back the waves only to an extent. When underlying pressures persist, no amount of intervention can prevent the inevitable.

Before we panic, it’s worth asking: what exactly changed between P59.90/USD and P60.10/USD? The honest answer is: not much.

More than anything, the P60 mark is more a psychological barrier. Markets, like people, fixate on round numbers. Traders watch them, headlines are written about them, and politicians scramble to react. But from a purely economic standpoint, there is nothing fundamentally different about the exchange rate at P60/USD versus P59/USD. The exchange rate is a continuous variable and not a cliff edge.

That said, the forces pushing the peso down are real and worth understanding.

Why the peso is weakening

If you didn’t know yet, the Philippines operates under a floating exchange rate regime. The peso-dollar rate is largely determined by supply and demand, in much the same way we let the price of gas and diesel be determined by supply and demand.

The BSP occasionally intervenes to smooth excessive volatility in the exchange rate, but it does not (and should not) defend a specific exchange rate level. Doing so would be enormously costly (the BSP will have to shell out billions of dollars) and ultimately futile if underlying pressures to depreciate are too strong.

So what’s driving the depreciation? There’s a confluence of forces at play.

First, the US dollar has been strong globally amid tight financial conditions, and notwithstanding the war it started in the Middle East. The dollar is now viewed as a safe haven asset, especially since the US is perceived to weather the oil price shock being a major oil producer. In fact, since 2018, the US has been the biggest crude oil producer in the world, surpassing Saudi Arabia and Russia.

With dollar-denominated assets are more attractive to investors worldwide, capital flows toward the US, and currencies like the peso weaken as a result. This is not unique to the Philippines; many other currencies have been under pressure. The Korean won, for instance, just fell to a 17-year low against the dollar.

Second, the ongoing Middle East conflict has sent oil prices surging, and the Philippines imports nearly all of its crude oil. Higher oil prices mean higher demand for dollars to pay for those imports, which puts additional downward pressure on the peso. The timing could hardly be worse, especially for a country that chronically imports more than it exports, because this situation creates a structural demand for foreign currency that weighs on the exchange rate over time.

These forces reinforce each other. A strong dollar, expensive oil, and a trade deficit all push in the same direction. The BSP’s dollar-selling can slow the slide, but it can do little (if anything) to reverse it.

Winners, losers, and the inflation question

A weaker peso is not automatically bad news for everyone. In principle, it helps our exporters: when the peso depreciates, Philippine goods and services become cheaper in the eyes of foreign buyers. The IT–BPM sector, which earns in dollars, benefits. Overseas Filipino workers sending money home see their remittances stretch further in peso terms.

But in the current context, I suspect the losers far outnumber the winners. A weak peso makes imports more expensive, and we are a heavily import-dependent economy. Everything from fuel to electronics to raw materials for manufacturing gets costlier when the peso falls. For ordinary consumers, this means higher prices at the pump, at the grocery, on electricity bills, on travel booking sites, and on online shopping platforms.

Inflation was already heading in the wrong direction even before the peso’s latest slide. Consumer prices rose 2.4% in February 2026 compared to last year, and we should expect a continued spike in inflation from March 2026 onward.

The combination of surging oil prices and a weakening peso is a double-whammy that will feed directly into higher consumer prices in the coming weeks and months.

Weak peso, weak economy?

Conventional wisdom dictates that a weak currency means a weak economy. That’s plainly wrong.

Some countries with strong export sectors actually benefit from a weaker currency. In the mid-2000s, China was accused of deliberately keeping the yuan undervalued for precisely this reason.

But in the current Philippine context, the peso’s weakness seems to be coinciding with broader signs of economic fragility. Last year, growth faltered to a mere 4.4%. Inflation is now starting to creep up. The fiscal deficit remains wide. Consumer and business confidence are shaky.

In short, the peso’s depreciation is not happening in a vacuum. It’s part of a larger picture of an economy under stress from multiple directions.

This is what makes the current situation different from a run-of-the-mill currency fluctuation. The peso is weak at a time when the economy can least afford it. Higher import costs will inevitably squeeze household budgets that are already strained. Higher inflation will pressure the BSP into tightening monetary policy, which could further dampen growth. And a wider trade deficit, exacerbated by costlier oil imports, will put even more pressure on the peso going forward.

What to watch for

The BSP now faces a difficult balancing act. It needs to signal to the Filipino public that it’s on top of the inflation situation, but aggressive tightening (raising interest rates too much) in the face of a supply-driven shock risks deepening the economic slowdown.

As I argued in my previous column, the right approach is a measured response: hold rates or adjust modestly, communicate clearly, and avoid overreacting to headline numbers that are being driven by external shocks rather than domestic overheating.

For the Marcos administration, the peso’s breach of P60 should serve as a reminder that macroeconomic management requires more than press conferences, emergency proposals, Band-Aid solutions, and populist measures (like adjusting our thermostats, cutting excise taxes, or expanding Libreng Sakay). The underlying vulnerabilities, including our oil import dependence, our trade deficits, our insufficient investment in domestic energy and productive capacity, are deeply structural and won’t be fixed overnight.

In the meantime, P60 is just a number. Don’t let this round number panic you. The real question is whether the forces driving the peso down are temporary or persistent — and right now, the evidence suggests they’re not going away anytime soon. Brace for a rough ride for the rest of 2026. – Rappler.com

Dr. JC Punongbayan is an assistant professor at the UP School of Economics and the author of False Nostalgia: The Marcos “Golden Age” Myths and How to Debunk Them. In 2024, he received The Outstanding Young Men (TOYM) Award for economics. Follow him on Instagram (@jcpunongbayan).

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