May 29, 2026
MANILA – The Philippines is among the Asian economies most vulnerable to the combined risks of a potential “super” El Niño, prolonged high US interest rates, and growing domestic policy uncertainty, according to Japanese bank Mitsubishi UFJ Financial Group (MUFG).
In a note to clients, MUFG identified three key risks that could increasingly shape movements in Asian asset markets and widen differences in economic performance across the region.
The first concern is the possibility of a super El Niño, which could worsen inflation pressures if it coincides with elevated energy prices. Such a scenario may push food prices higher and add strain to consumer spending.
The bank also pointed to the risk of additional interest rate hikes by the US Federal Reserve and persistently high Treasury yields, although it emphasized that this remains outside its main forecast.
A third concern is rising uncertainty in domestic policies, which could discourage investment flows and lead to currency weakness, further limiting the options available to policymakers.
“Certainly in Asia, India, Indonesia, and the Philippines could be more vulnerable when you look at the totality of all three risks combined,” MUFG said.
The warning comes as Philippine monetary authorities continue to weigh inflation risks ahead of their next policy decision.
Last week, Bangko Sentral ng Pilipinas (BSP) Governor Eli Remolona Jr. said inflation data for May, scheduled for release on June 5, would play a major role in the Monetary Board’s next move.
“It’s a toss-up whether we do an off-cycle [rate hike] or we just wait for the regular meeting, which is not that far away anyway,” Remolona said.
Persistent inflationary pressures
Inflation accelerated to 7.2 percent in April from a year earlier — its fastest pace in three years — driven largely by rising energy costs linked to tensions in the Middle East that eventually spilled over to other basic goods.
The April figure also marked the second straight month that inflation exceeded the BSP’s target range of 2 percent to 4 percent. In response, the central bank raised its benchmark interest rate by 25 basis points to 4.5 percent during its April 23 meeting, citing a worsening inflation outlook.
The BSP projects inflation to average 6.3 percent this year before easing to 4.3 percent in 2027.
The central bank said it remains committed to bringing inflation back to its 3-percent target and would take the necessary steps to achieve price stability within a reasonable period.
On the peso’s depreciation, Remolona said a weaker currency could add to inflationary pressures but may also benefit exports and help reduce the country’s trade deficit.
Meanwhile, MUFG said market sentiment across Asia remained supported by optimism over ongoing negotiations for a possible US-Iran agreement.
This version removes repetitive references to inflation and rate hikes while improving the progression from MUFG’s risks to the BSP policy response.