THE peso could fall to P59.50 to the dollar by the end of this year on the back of weaker export growth, continued Bangko Sentral ng Pilipinas (BSP) rate cuts and higher inflation, a Fitch Group unit said.
“We expect the Philippine peso to trade sideways around PHP59.00/USD in the near term,” BMI Country Risk & Industry Research said of the three- to six-month outlook for the currency.
Over the longer term, or up to 24 months, “we expect the peso to remain weak and forecast the peso to depreciate by 1.3 percent to around P59.50 by end-2026.”
BMI noted that the currency had hit a record low of P59.50:$1 on Jan. 15 — before recovering to P58.76 to the greenback due to a broad weakness in the dollar — and was continuing to underperform in a sign of persistent depreciation pressures.
With expectations of a BSP rate hike next week already priced in and reinforced by weak economic growth, the differential between the policy rates of the Philippine and US central banks will subsequently return to its narrowest at 50 basis points, it added.
“We expect the countervailing forces of a weaker dollar and the BSP cutting rates ahead of the US Fed (Federal Reserve) to keep the peso range-bound over the next few months,” BMI said.
Over the longer term, meanwhile, the impact of higher US tariffs on Philippine-made goods and the end of the frontloading that drove exports up 15.2 percent last year are expected to lead to more moderate growth in outbound shipments, “which will weigh on the peso.”
“The tailwind from exports on the peso will fade,” BMI said. “While the AI boom should provide support to exports, we expect export frontloading to fade.”
It noted that even with exports having grown last year — which led to a narrower current account deficit of 3.4 percent from 4.0 percent in 2024 — the peso still fell by 1.5 percent as investor confidence dipped due to a massive corruption scandal.
The rate differential will remain narrow at 75 basis points by the end of 2026, BMI said, with the BSP expected to cut by 50 basis points to keep inflation within target and the Fed also easing by the same amount, “which means there will be little relief to the peso on this front.”
Higher inflation will also flip the consumer price differential in the US’ favor, “which, all else equal, will further exert pressure on the peso.”
Inflation rose for a second straight month in January, hitting an 11-month high of 2.0 percent on the back of higher fuel and utility costs.
The BSP said the outlook for consumer price growth remained benign, with the rate expected to remain within the 2.0- to 4.0-percent target range this year and the next, and also reiterated that the monetary easing cycle was nearing its end.
BMI said that with sufficient reserves as of end-December, the BSP is expected to defend the currency and prevent it from falling past P60 to the dollar.
BSP Governor Eli Remolona Jr. has said that the central bank would act to prevent peso volatility but not automatically defend a specific exchange rate level.
The country’s foreign reserves dropped by 0.3 percent to $110.9 billion in December from $111.3 recorded a month earlier. It was, however, markedly higher than the $106.3 billion posted in 2024.
Last Friday, the BSP reported that the reserve level hit a 16-month high of $112.51 billion at the end of January, enough to pay for 7.5 months’ worth of imports.
“Risks to our outlook are weighted towards a weaker peso,” BMI said.
“A more hawkish Fed places considerable depreciatory pressure on the peso,” it added.
“Furthermore, we expect exports to cool, but AI-linked trade is a key offset in our baseline. Should AI demand ease on softer capex sentiment, the current account would weaken further, weighing on the peso.”
