THE peso could regain some ground next year, Metrobank said, but structural factors and possible interest rate cuts might prevent the currency from strengthening beyond P60:$1.
In a note to clients, the bank said the peso was likely to remain under pressure for the rest of this year before hitting a turning point in 2027, when easing geopolitical tensions, a weaker dollar and an improving domestic economy could support a moderate recovery.The currency strengthened by P41.4 centavos to P60.751 versus the dollar on Wednesday, its strongest close in nearly three weeks, following news that inflation had slowed further in July.“While the peso may regain ground next year, structural factors and monetary policy adjustments may prevent it from breaking below the 60 per USD threshold by end-2027,” Metrobank said.Lower domestic interest rates could turn off global investors, potentially limiting foreign capital inflows and, consequently, the peso’s gains.“Potential rate cuts by the Bangko Sentral ng Pilipinas (BSP) in 2027 may make local financial assets comparatively less attractive to global investors,” the bank said.The BSP’s policymaking Monetary Board has so far raised key interest rates twice this year to tame inflation, which hit a three-year high of 7.2 percent in April.Metrobank expects the peso to remain vulnerable to both global and domestic pressures this year, particularly elevated energy costs, strong dollar demand, higher import bills and weak foreign investments.“Current market sentiment favors the US dollar, cementing its status as a safe-haven asset,” the bank said, adding that “this is underpinned by elevated inflation and expectations of aggressive Federal Reserve (Fed) rate increases.”“Given the persistent external and internal pressure, Metrobank expects peso weakness through the rest of 2026.”The currency outlook could shift in 2027, with a weaker dollar and more stable global conditions potentially providing room for a recovery.Metrobank’s base case assumes that the United States and Iran will continue negotiations to end their war as more parties become involved amid threats to critical oil trade choke points.“Anticipated conflict de-escalation in the Middle East and domestic economic improvement may turn the tide toward a moderate peso recovery by end-2027,” the bank said.It also expects US monetary policy to become more supportive of emerging-market currencies. While the Fed is likely to hike rates at least once this year, it could shift to a more dovish stance in 2027 as geopolitical tensions ease.“This may become a catalyst for a weaker US dollar,” Metrobank said.
