Peso in Free Fall: Philippines Left Behind in Asia Amid Oil Price Shock

The Philippine peso has been left behind by its Asian peers as oil prices surge, eroding US dollar reserves. Despite other emerging-market currencies advancing against the greenback, the peso has fallen 6.2% this year and is now the region's worst-performing currency.

The main reason for the peso's decline is its reliance on service industries, which have seen a widening trade deficit of nearly 30% to $37 billion in the first seven months of this year. The country's foreign reserves have dwindled by 9%, tying the hands of the central bank.

Strategists at JPMorgan Chase and Bank of America see the peso extending its decline to as low as 65 per dollar by the middle of next year, down from a record-low of 62.77 on Monday. The pair fell after President Ferdinand Marcos Jr and BSP governor Eli Remolona said it was futile to fight the peso's weakness by drawing down foreign reserves.

Analysts say the peso is getting penalized due to its growth differential and inflation differential being more pronounced compared to other countries in the region. A seasonal pickup in fourth-quarter remittances may provide some cushion, but not enough to reverse the trend.