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The Philippines kept its title as the world’s most disaster-prone nation for a 21^st straight year, with typhoons and floods battering communities while billions of pesos meant to protect them vanish in graft scandals.

The Southeast Asian country posted a risk score of 46.56 in the 2025 WorldRiskIndex, unchanged from last year but still ahead of 192 other nations. India ranked second, followed by Indonesia, Colombia, and Mexico, according to the study released on Wednesday by Germany’s Bündnis Entwicklung Hilft and Ruhr University Bochum.

The index weighs exposure to disasters such as cyclones, floods, and earthquakes alongside vulnerability indicators like poverty, inequality, and health systems. A score of 100 signals extreme risk.

The Philippines faces a broad spectrum of hazards, but river and coastal flooding remain the most significant threats, according to the report.

The ranking highlights how climate change continues to hit the archipelago, which is lashed by about 20 tropical storms each year. The latest assessment comes as the country braces for Tropical Storm Opong, days after Super Typhoon Nando — internationally named Ragasa — plowed through Luzon.

At the same time, government flood control programs are collapsing under the weight of corruption scandals. A sweeping investigation this year exposed widespread misuse of funds, forcing the removal of P255 billion ($4.4 billion) worth of projects from the proposed 2026 national budget. Flood control allocations were cut to zero.

“One problem that has become obvious is that the needed infrastructures like flood control projects are not being built because of corruption,” Maria Ela L. Atienza, a political science professor at the University of the Philippines, said in a Viber message. There seems to be more focus on relief rather than disaster prevention, she added.

China, Mexico and Japan led in disaster exposure, but the Philippines still placed fourth globally with a score of 39.99. The country also ranked “very high” in vulnerability (54.2) and coping capacity (58.54), underscoring weak infrastructure and strained social systems.

Provinces most at risk of flooding included Cagayan, Agusan del Norte, Pangasinan, Pampanga, Maguindanao and Metro Manila, each scoring above 82% in exposure. By contrast, Marinduque, Laguna, Batanes, Sarangani and Dinagat Islands had low flood exposure.

Metro Manila’s flood risk has been worsened by “soil sealing,” where rapid urbanization covers natural surfaces with concrete, preventing water absorption.

The capital sits on a low-lying river plain intersected by the Pasig River and a dense canal network. Laguna, meanwhile, benefits from hilly terrain and the buffering capacity of Laguna de Bay, which absorbs excess water.

GOVERNMENT FAILURES

The Philippines’ top ranking reflects governance failures more than geography, analysts said.

“Risks have skyrocketed because of the fact that public spending on risk management through flood controls and climate change was substandard to nonexistent,” John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, said in a Viber message. “Politicians and their cahoots decided to be greedy.”

Despite disaster-related laws and international financing for resilience, spending has skewed toward emergency relief. Manila regularly deploys military and civilian assets for typhoon response, but falls short in long-term prevention such as drainage systems, retention basins, and reforestation.

Ms. Atienza said development plans at the local and national levels should be balanced with effective disaster-risk management.

“Big infrastructures like airports and highways as well as commercial establishments and housing projects should not destroy the environment and cause dangers to people or make areas more disaster-prone,” she added. 

Disaster risk is increasingly shaped by social inequality and weak institutions, even in developed economies, according to the report. In Africa, almost 80% of the continent is classified as high- or very high-risk, while Asia and the Americas remain hotspots.

China, with a risk score of 30.62, ranked eighth overall, while the US did not make the top 10. Globally, the gap between disaster exposure and coping capacities has widened as governments struggle to finance prevention.

The Philippines’ risk score, while slightly lower than last year, remains stubbornly high despite decades of donor-backed disaster management programs. Manila has passed multiple disaster laws, created a national council and tapped international climate finance, but implementation has lagged.

The costs are rising. Super Typhoon Nando caused billions of pesos in damage to agriculture and infrastructure this month, compounding fiscal stress as the government pushes higher social spending and grapples with debt exceeding 60% of GDP.

With flood control funds scrapped in the 2026 budget, analysts said the Philippines risks more economic and human losses.

“The current challenges in flood risk management require a fundamental rethinking of disaster preparation,” according to the 2025 report, noting that extreme weather events are not only increasing in frequency, but are also increasingly exceeding the capacities of existing protection systems.

“At the same time, practical examples from various regions of the world show that successful coping strategies are based on the interplay of several factors: technological innovation, local capacity for action, and ecological resilience,” it added. — Aubrey Rose A. Inosante, Reporter

The Philippines’ budget deficit widened in August as revenues fell faster than spending, adding pressure on the government to borrow more and keep within its deficit ceiling.

The gap ballooned 56% to PHP 84.8 billion (USD 1.5 billion) from a year earlier, according to data released by the Bureau of the Treasury on Wednesday. Compared with July, the shortfall surged more than fourfold from P18.9 billion.

Collections fell 8.8% to PHP 352.5 billion, dragged by a steep decline in nontax revenues, which slid nearly 68% to PHP 21.3 billion. Treasury income dropped 53%, while remittances from other offices tumbled 73%.

Tax revenues, however, inched up 3.4% to PHP 331.2 billion. Bureau of Internal Revenue collections rose 5% to PHP 250.1 billion, offsetting weaker Bureau of Customs receipts, which slipped 1.4% to PHP 77.4 billion.

Government expenditures fell 0.7% to PHP 437.3 billion in August from a year ago, weighed by lower primary spending, which excludes interest payments. Primary outlays dropped 3.5% to PHP 374.2 billion.

Interest payments, by contrast, jumped almost 20% to PHP 63.1 billion. The primary deficit — net of interest costs — widened to PHP 21.7 billion from just PHP 1.4 billion a year earlier.

For January to August, the fiscal gap rose 25% to PHP 869.2 billion from a year earlier. The deficit represents 56% of the PHP 1.56-trillion full-year ceiling, leaving room for additional borrowing in the final four months.

Spending climbed 7.2% to PHP 3.95 trillion, already 65% of the government’s PHP 6.08-trillion expenditure program. Primary spending increased 6% to PHP 3.37 trillion, while interest payments grew almost 15% to PHP 584.1 billion, making up 15% of total disbursements.

Revenue collections rose 3.1% to PHP 3.09 trillion, equivalent to 68% of the PHP 4.52-trillion full-year goal. Tax revenues made up 90% of the haul, rising 8.9% to PHP 2.79 trillion.

The BIR collected PHP 2.14 trillion, up 11%, boosted by higher corporate and personal income taxes, value-added tax, tobacco excise, percentage tax on financial institutions, and documentary stamp duties. The robust performance of the BIR allows the deficit to remain manageable, the Treasury said.

Customs collections edged up 1.1% to PHP 621.4 billion, supported by efforts against smuggling and illicit trade.

Nontax revenues, by contrast, fell 31% to PHP 298.3 billion, though this still accounted for 97% of the PHP 306.5-billion annual target.

Treasury income slipped 5.5% to PHP 189.3 billion, surpassing the revised PHP 179.2-billion goal. The bureau cited higher interest earnings on deposits, dividends from state companies, and remittances from the Philippine Amusement and Gaming Corp. and Manila International Airport Authority.

The primary deficit surged 52% to PHP 285 billion in the eight-month period, accounting for 85% of the total fiscal gap. The Treasury attributed the increase to the government’s push for priority programs and growth-supportive spending.

The government aims to cap the deficit at PHP 1.56 trillion this year, equivalent to 5.5% of gross domestic product (GDP). Officials plan to gradually narrow the shortfall to PHP 1.55 trillion or 4.3% of GDP by 2028. — Aubrey Rose A. Inosante

A House of Representatives committee on Monday moved to channel billions worth of flood control funds to education and health as they began revising the proposed PHP 6.793-trillion national budget for 2026.

The House sub-committee on Budget Amendments Review redirected PHP 255 billion in flood control funding originally allocated for the Public Works department next year towards the Health and Education departments, in line with President Ferdinand R. Marcos, Jr.’s call to strengthen human capital development.

“We want to ensure that we are able to reallocate it in a way that the budget will be most responsive to the needs of the Filipino people,” said Nueva Ecija Rep. Mikaela Angela B. Suansing, who chairs the House Appropriations Committee.

The reallocation follows allegations of irregularities in flood control projects, including substandard, incomplete or nonexistent infrastructure, in a country prone to flooding.

The House sub-committee overseeing fund rechanneling is part of a broader push to improve transparency in budget deliberations, replacing the previously opaque “small committee” that handled revisions to the national spending bill.

The House will begin plenary deliberations on the proposed national spending plan today (Sept. 23), Ms. Suansing said, over a month after the Budget department submitted the National Expenditure Program to Congress.

Ms. Suansing said deliberation on the budget will continue until the House passes the budget bill on second reading before the end of September.

Congressmen raised the Department of Education’s (DepEd) proposed budget by 2.8% or PHP 26.54 billion to PHP 955.04 billion for 2026.

The bulk of the proposed funding increase would go towards DepEd’s classroom construction efforts amid a shortage in government schools, more than doubling the allocation to PHP 36.5 billion from PHP 13.2 billion.

The boost in classroom construction budget could fund an additional 19,300 classrooms nationwide, helping ease classroom shortages in government schools, Party-list Rep. Brian Poe Llamanzares, vice-chairman of the House Appropriations Committee, told lawmakers.

Other programs that received additional funding include the school-based feeding program (PHP 1.5 billion), additional compensation for teachers providing tutoring (PHP 984.11 million), and teaching overload pay for teachers (PHP 579.55 million), among others.

The House sub-committee also separately added P6.61 billion for the Commission on Higher Education’s (CHED) Tertiary Education Subsidy to PHP 22.17 billion and hiked the Tulong Dunong Program budget by PHP 2.69 billion.

CHED Chairperson Shirley C. Agrupis earlier told lawmakers that about 300,000 college students could lose access to government grants if Congress does not increase the budget for the programs that cover the full or partial cost of college education for students enrolled in state colleges.

Lawmakers also increased the Department of Health’s proposed budget for next year by 3.2% to PHP 948.07 billion from PHP 918.79 billion initially earmarked under the National Expenditure Program.

Of the amount, PHP 26.73 billion would be channeled towards the government’s health financial assistance for poor patients, with PHP 2.4 billion allotted for the completion of key government hospitals nationwide.

Congressmen also tweaked the government’s subsidy for the Philippine Health Insurance Corp. (PhilHealth) to PHP 60 billion, aligning with Mr. Marcos’ directive to restore part of the PHP 89.9 billion the National Government took from the state health insurer last year.

“This is in line with the pronouncement… to return back what was taken from the budget of PhilHealth,” Surigao del Sur Rep. Romeo S. Momo, Sr., vice-chairman of the House appropriations panel, told lawmakers.

The Budget department is “working on identifying the appropriate funding source to effect the return” of the P60-billion PhilHealth funds, Budget Secretary Amenah F. Pangandaman told BusinessWorld.

“While other options — such as the use of savings, unprogrammed appropriations, or a supplemental budget — exist under current budgetary frameworks, these are subject to strict constitutional and legal requirements,” she said, noting that providing funding to PhilHealth via Congress is the “clearest and most transparent path.”

Congressmen also increased the Social Welfare department’s budget for the Assistance to Individuals in Crisis Situations (AICS) program by PHP 32 billion to PHP 59.04 billion. AICS provides financial assistance to individuals in crisis, including medical, burial, transportation, and educational assistance.

They also hiked the Department of Agriculture’s budget by PHP 41.08 billion to PHP 176.01 billion.

About PHP 8.98 billion would be redirected towards the construction of additional farm-to-market roads, with PHP 9.21 billion going towards the construction of post-harvest facilities and rehabilitation of existing structures, among others, a presentation by the House Appropriations Committee showed.

The House sub-committee also channeled about PHP 1 billion to the Transportation department for its Metro Rail Transit Line 3 rehabilitation project, and an additional PHP 266 million for its operations.

Lawmakers also added an additional PHP 900.56 million for the acquisition of 40 fast patrol ships for the Philippine Coast Guard (PCG), and PHP 656.86 million to acquire a “dark vessel” detection system for ships operating in Philippine waters.

The PCG has been at the forefront of Manila’s efforts to assert its territorial claims in the South China Sea, where China’s expansive nine-dash line overlaps with the exclusive economic zones of the Philippines, Vietnam and Malaysia.

Congressmen also agreed to provide the Defense department with an additional PHP 556.86 million for the development of a forward operating base in Palawan province, which faces the disputed waterway. Another PHP 300 million was earmarked for the acquisition of land lots for the construction of an air force base in Laoag, Ilocos province.

The decision to reallocate flood control funds toward human capital development is a step in the right direction for the government, said John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies.

“Lawmakers must ensure that these funds go beyond recurring costs and are directed toward systemic improvements such as teacher training, health infrastructure, digital access and nutrition,” he said in a Viber message.

Congress should also consider revisiting the broader proposed national budget rather than focusing solely on the PHP 255-billion flood control funds, Mr. Rivera said.

“Without it, this reallocation may just be a temporary fix rather than a transformative pivot,” he said.

“The issue is that we should place our funds in investments with higher gains,” Leonardo A, Lanzona, an economics professor at the Ateneo de Manila University, said in a Facebook Messenger chat. “We should target these funds to the poor since these are the households that need the resources the most and hence produce the greatest gains.” —Kenneth Christiane L. Basilio, Reporter, with inputs from Aubrey Rose A. Inosante

The Philippines is projected to be the third-most affected economy in Southeast Asia by US tariffs, as its exports to the US are expected to contract by 13%, a United Nations Development Programme (UNDP) report showed.

In its report “Disruption, Diversification, and Divergence” released on Sept. 18, the UNDP said the Philippine exports to the US could potentially drop by 13.1%, due to the newly imposed tariffs.

“The imposition of steep US tariffs is projected to trigger a significant demand-side shock, particularly for Asia-Pacific economies with high trade exposure,” it said.

“The Asia-Pacific region as a whole faces a 6.4% decline in total exports to the US due to tariff-induced price increases, with Southeast Asia hit the hardest at 9.7%,” it added.

In Southeast Asia, Cambodia is the most vulnerable to the US tariffs, with an expected 23.9% drop in total exports to the US.

Vietnam is the second-most affected by tariffs, with a likely 19.2% decline in total exports.

Other Southeast Asian economies are also expected to see a decline in exports to the US, with Thailand’s exports likely to fall by 12.7%, followed by Malaysia (10.4%), Indonesia (6.4%), and Singapore (3.8%).

These estimates are based on US tariff rates as of July 31.

In an executive order signed on July 31, US President Donald J. Trump imposed a 19% duty on many goods from five members of the Association of Southeast Asian Nations (ASEAN) — the Philippines, Cambodia, Malaysia, Thailand and Indonesia. These rates took effect on Aug. 7.

The US is the Philippines’ top export destination, receiving $12.14 billion in shipments last year.

The UNDP said that small, highly trade-dependent economies that focus on lower-value products are the most exposed to tariff shocks.

“Their reliance on narrow export baskets and limited markets leaves them without meaningful buffers against external volatility. In such settings, tariff increases are transmitted directly into export losses, foreign exchange constraints, and employment pressures, with limited scope for policy mitigation given constrained fiscal space and less flexible labor markets,” it said.

Meanwhile, larger economies that concentrate on higher-value products are more likely to absorb the impact of tariff shocks, UNDP said.

According to the UNDP, the Philippines had one of the highest shares of exempted goods relative to its total exports to the US at 27%.

This was behind Malaysia (39%) and Vietnam (28%), but ahead of Thailand (26%), and China (24%).

US TARIFF RULING

Meanwhile, the Philippine government is still waiting for the final decision of the US Supreme Court on the legality of Mr. Trump’s global tariffs.

“We still have to wait for the final decision of the Supreme Court on this,” Special Assistant to the President for Investment and Economic Affairs Undersecretary Ma. Angela E. Ignacio said during the Philippine Economic Briefing in Clark.

Reuters reported the US Supreme Court has scheduled arguments that will hear the legality of the Trump tariffs on Nov. 5.

The High Court is taking up the case after a lower court ruled that Mr. Trump had overstepped his authority in imposing most of his tariffs under the 1977 law known as the International Emergency Economic Powers Act. The tariffs are still in effect during the appeal to the SC.

Ms. Ignacio said the Philippine government is still looking to secure an “optimal and mutually beneficial agreement” with the US, which has previously expressed interest in securing tariff exemptions for selected US imports and a free-trade agreement.

Ms. Ignacio also said the country is looking at alternative export markets such as the European Union, the Middle East and Australia. — ARAI

The Philippines’ balance of payments (BoP) surplus ballooned to USD 359 million in August, reflecting gains in the central bank’s net income from overseas investments, the Bangko Sentral ng Pilipinas (BSP) said.

Preliminary data from the BSP showed the BoP surplus stood at USD 359 million in August, widening from USD 88 million in the same month last year.

Month on month, the BoP position swung to a surplus from the USD 167-million deficit recorded in July.

“The BoP surplus reflected the Bangko Sentral ng Pilipinas’ net income from its investments abroad,” the central bank said in a statement.

BoP refers to the country’s economic transactions with other nations. A surplus indicates more funds entered the country, while a deficit shows that the country spent more than it received.

In the January-to-August period, the country’s BoP position swung to a USD 5.397-billion deficit, a reversal from the USD 1.592-billion surplus in 2024.

“Preliminary data indicate that the year-to-date BoP deficit was largely due to the continued trade in goods deficit,” the BSP said.

The Philippines’ trade-in-goods balance, or the difference between the values of exports and imports, narrowed to USD 28.46 billion in the January-to-July period, from USD 29.93 billion a year ago.

“This was partly offset by the sustained net inflows from personal remittances from overseas Filipinos, foreign borrowings by the National Government, foreign direct and portfolio investments, and trade in services,” the BSP said.

Michael L. Ricafort, chief economist at Rizal Commercial Banking Corp., said in an e-mail that the latest BoP position partly reflects the central bank’s investment gains from abroad.

“(This was) offset by the continued Trump risk factor or premium that led to some market volatility worldwide in view of the Aug. 7, 2025 extended deadline for US trade deals and tariffs,” he added.

US President Donald J. Trump’s higher tariffs on imports from dozens of countries, including the Philippines, took effect on Aug. 7.

The US imposed a 19% tariff on Philippines goods.

Mr. Ricafort said the August BoP position also came as the government paid off external debts and increased volatility in the local foreign exchange market.

In August, the peso performed weaker at an average P57.2525 per US dollar from the P56.7523 recorded in July.

The BSP expects the overall BoP position to end at a USD 6.3-billion deficit or -1.3% of gross domestic product (GDP) this year and a USD 2.8-billion deficit or -0.5% of GDP in 2026.

DOLLAR RESERVES

Meanwhile, the BSP said the BoP position mirrored the rise in gross international reserves (GIR) to USD 107.1 billion as of end-August from USD 105.4 billion as of end-July.

“The latest GIR level ensures availability of foreign exchange to meet balance of payments financing needs, such as for payment of imports and debt service, in extreme conditions when there are no export earnings or foreign loans,” the BSP said.

The central bank said the level of dollar reserves as of end-August “remains an adequate liquidity buffer,” equivalent to 7.2 months’ worth of imports of goods and payments of services and primary income, more than double the three-month standard.

It is also enough to cover about 3.7 times the country’s short-term external debt based on residual maturity.

GIR comprises foreign-denominated securities, foreign exchange, and other assets such as gold. It enables a country to finance imports and foreign debts, maintain the stability of its currency, and safeguard itself against global economic disruptions.

The central bank expects GIR to settle at USD 104 billion by end-2025 and USD 105 billion in 2026. — Katherine K. Chan

 

The Bangko Sentral ng Pilipinas (BSP) is implementing a new cash withdrawal limit of PHP 500,000 per day in a move to curb money laundering risks involving large cash transactions.

BSP Governor Eli Remolona Jr. issued on Thursday Circular No. 1218 directing all supervised financial institutions (BSFI) to implement “enhanced due diligence (EDD) on large value cash-related payments and transactions.”

Under the circular, a maximum of P500,000 or its equivalent in foreign currency may be withdrawn at once or via multiple transactions within one banking day.

The BSP said withdrawals exceeding the threshold shall only be processed via check payment, fund transfer, direct credit to deposit accounts, or BSFI’s digital payment platforms.

“The BSP in its latest sectoral risk assessment and surveillance monitoring has noted money laundering, terrorism financing, and proliferation financing risks arising from cash transactions of banks and other BSP-supervised financial institutions,” the circular read. “These disclosed the use and abuse of cash-based transactions to move illicit funds into and out of the financial system.”

The BSP issued the circular amid an ongoing investigation into allegedly anomalous flood control projects involving government employees, contractors, and other individuals.

“Through this reform, the BSP aims to strengthen measures against the use of cash for illegal activities, promote trust in the financial system, and ensure that it can respond to new risks,” the central bank said.

However, the central bank noted that BSFIs may still allow withdrawals beyond the P500,000 limit if the client provides evidence of a legitimate business purpose. Such transactions may be approved after the BSFI conducts enhanced due diligence and files a suspicious transaction report (STR).

“If the BSFI fails to satisfactorily complete the EDD procedures, or reasonably believes that performing the EDD process will tip-off the customer, it shall file a suspicious transaction report and closely monitor the account and review the business relationship,” the circular reads.

“The BSFl shall also consider the alerts, red flags. and suspicious indicators, as well as typologies rioted/reported by relevant government agencies, involving large or unusual cash transactions in filing STR,” it added.

The circular will take effect in 15 calendar days following the publication in the Official Gazette or in a newspaper of general circulation.

On Wednesday, the Court of Appeals froze assets pointing to a potential money laundering scheme of 26 Department of Public Works and Highways (DPWH) officials and private contractors allegedly linked to anomalous government flood control projects. — Katherine K. Chan

The Bangko Sentral ng Pilipinas now has more room to continue its policy easing to support economic growth after the US Federal Reserve delivered a much-awaited cut on Wednesday but may stay cautious amid lingering inflation risks.

“The Fed decision is but one additional factor for BSP’s policy calculus… Last night’s decision and potential subsequent easing would afford BSP more space to cut rates further should growth remain in need of support,” Metropolitan Bank & Trust Co. (Metrobank) Chief Economist Nicholas Antonio T. Mapa said in a Viber message.

Speaking at the Philippine Economic Briefing in Cebu held on Thursday, BSP Deputy Governor Zeno R. Abenoja said the central bank will continue to monitor both inflation and growth.

“This year, we think inflation will average below the target. The target is 2% up to 4%. We may be averaging at around 1.7%… But for the next two years, 2026, 2027, inflation will be back in the middle of the target, around 3.3% to 3.4%, and because of that, we may be near the appropriate interest rates for policy. So, we are moving towards that, what we call the ‘sweet spot’ where interest rates are at the right level to promote growth but at the same time control inflation,” he said.

“What are we looking at? We are looking at future inflation or underlying inflation pressures. We are looking at growth numbers. If growth numbers continue to be resilient, we don’t have to do big adjustments, but we will continue to do baby steps. We are looking at inflation expectations… So, for the rest of the year, we still have two policy meetings. It is possible that there could be some policy actions, but we will take it one meeting at a time.”

Last month, the BSP lowered borrowing costs by 25 basis points (bps) for a third straight meeting to bring the policy rate to 5%. It has now reduced benchmark interest rates by a cumulative 150 bps since it began its rate cut cycle in August 2024.

BSP Governor Eli M. Remolona, Jr. has left the door open to one more reduction within this year to support the economy if needed, which would likely mark the end of its easing cycle.

He also said that they see “more significant risks to the inflation outlook than the output outlook,” even as they expect prices to be manageable.

The Monetary Board’s last two meetings this year are scheduled for Oct. 9 and Dec. 11.

Meanwhile, at Wednesday’s meeting, the Fed lowered its policy rate by 25 bps to a range of 4%-4.25%, its first cut since December, and signaled a gradual easing cycle in response to mounting labor market concerns, Reuters reported. This brought its cumulative cuts since September 2024 to 125 bps.

At the same time, Fed Chair Jerome H. Powell highlighted “a challenging situation” for policymakers, noting that risks to inflation were tilted to the upside and risks to employment to the downside.

The comments dampened market optimism despite a much hoped-for dovish shift after recent data that showed unemployment climbing to 4.3% in August and payrolls growing far less than expected. A steep downward revision to benchmark jobs figures for the year through March also recently added weight to the view that the labor market is losing steam, bolstering the case for multiple rate cuts ahead.

The US central bank’s release on Wednesday of updated quarterly economic projections, including rate forecasts issued in a chart known as the “dot plot,” reflected expectations of more easing this year when compared to the “dots” from the June meeting, with 50 bps in cuts seen before yearend.

At the same time, the Fed’s projections still put inflation ending this year at 3%, well above the central bank’s 2% target, while its projection for economic growth was slightly higher at 1.6% versus 1.4%.

Peso suport

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort said the BSP could match the Fed’s future cuts to maintain a “healthy” rate differential, but only if the data show a weakening economy and manageable inflation. The US central bank’s latest move put the difference between its target rate and the BSP’s to 75 bps.

Mr. Remolona has said that the rate differential’s potential impact on the peso does not worry them as much anymore as the local unit has performed well against the dollar, even as this margin has been below 100 bps for some time.

Metrobank’s Mr. Mapa said a wider spread between the BSP and the Fed’s key rates could attract foreign inflows, which would prop up the peso against the dollar and help limit imported inflation.

“The Fed’s easing gives BSP more room to cut without risking sharp peso depreciation… If BSP cuts again while the Fed continues easing, the differential will likely remain within a safe range, especially if both move in tandem. However, if BSP moves faster than the Fed, peso depreciation risks could rise. This is why the BSP is careful with its succeeding steps and continues to stress their data dependency,” Ruben Carlo O. Asuncion, chief economist at the Union Bank of the Philippines, said in a Viber message.

He said that the peso could weaken if the BSP eases “too aggressively,” which could then cause import costs to go up and stoke prices.

“Secondly, while inflation is currently below target, risks remain from typhoon-related supply shocks, higher rice tariffs, and energy prices. The BSP must avoid over-easing if these materialize,” Mr. Asuncion said.

“Lastly, US trade policy uncertainty and geopolitical tensions could affect global capital flows. A sudden reversal in Fed policy or a spike in US inflation could force BSP to pause or even reverse easing.”

Philippine National Bank economist Alvin Joseph A. Arogo said in an e-mail that they do not expect the BSP to move in lockstep with the Fed, but a wider gap between rates could provide a “margin of safety” for the peso.

The BSP is more focused on domestic economic indicators, particularly inflation and GDP (gross domestic product) growth, when calibrating its monetary policy,” he said.

On Thursday, the peso closed at PHP 57.06 per dollar, weakening by 17 centavos from its PHP 56.89 finish on Wednesday.

Year to date, the local unit is up by 78.5 centavos from its PHP 57.845 close on Dec. 27, 2024.

“At this point, it appears the BSP won’t move as fast or as deep as the Fed in cutting rates, so a widening policy rate differential between the US and the Philippines will further strengthen the peso. It is also worth noting that a wide policy rate differential gives the BSP significant scope for lowering rates to boost the economy while ensuring the peso’s stability,” China Bank Capital Corp. Managing Director Juan Paolo E. Colet said in a Viber message.

Prospects of more BSP and Fed rate cuts will be positive for domestic bond yields and the stock market, he said, adding these could push the Philippine Stock Exchange index (PSEi) to the 6,500-6,600 levels in the coming months.

The PSEi went up by 22.96 points or 0.37% to close at 6,233.62 on Thursday.

“We expect a downward bias for yields, with any upward correction to be limited as investors would prefer locking in yields at this point,” a bond trader added.

Regina Capital Development Corp. Head of Sales Luis A. Limlingan said in a Viber message that the US central bank’s decision had no immediate impact on Philippine markets as the cut has already been priced in by investors.

“Moving forward, more economic data such as CPI (consumer price index) and employment data, may impact the timing of the Fed and BSP cuts,” he said. — Katherine K. Chan with a report from Aaron Michael C. Sy