By Luisa Maria Jacinta C. Jocson, Senior Correspondent
THE PHILIPPINE PESO is anticipated to maintain its upward momentum against the dollar until early 2026, driven by easing inflation, expectations of additional policy relaxation by the central bank, and enhanced trade and investment activities.
“We forecast the peso to appreciate against the US dollar, reflecting low inflation, ongoing potential for rate reductions, improvements in foreign direct investments, and a probable trade agreement with the US, alongside robust infrastructure expenditure,” MUFG Global Markets Research mentioned in a report.
The Tokyo-based research entity predicts the peso will stabilize at P55.60 against the greenback by the third quarter and further appreciate to P55 by the fourth quarter. It envisions the peso reaching P54.50 versus the dollar by the initial quarter of next year.
The peso finished at P55.721 a dollar on Tuesday, depreciating by 2.1 centavos from its P55.70 close the previous day.
It has been trading around the P55-a-dollar mark since late April, reaching a near two-year peak last month as the dollar faced pressure following Moody’s Ratings downgrade of the US’ triple-A rating.
“Part of this transition reflects global elements such as the US-China tariff break, with our outlook now suggesting more moderate weakness of the Chinese yuan,” MUFG stated.
“More crucially, domestic inflation tendencies in the Philippines have also been less intense than anticipated, providing the BSP (Bangko Sentral ng Pilipinas) greater leeway to reduce rates to bolster the economy,” it elaborated.
The dollar dropped to a six-week low as inconsistent US trade strategies obscured markets, and investors adopted a cautious approach ahead of significant developments later in the week, as reported by Reuters.
MUFG estimates Philippine inflation to average 1.8% this year, below the central bank’s target of 2-4% and its own forecast of 2.3%. Inflation averaged 2% over the first four months.
This was spurred by anticipations of “reductions in local rice prices, manageable oil prices, coupled with decreased risks to transport fare and electricity price increases,” MUFG explained.
“Thus, we persist in forecasting that the BSP will remain dovish and will cut the policy rate by an additional 75 basis points (bps), resulting in a rate of 4.75% by the end of 2025,” it further stated.
The Monetary Board is set to conduct its next rate-setting meeting on June 19. BSP Governor Eli M. Remolona, Jr. has remarked that a 25-bp rate reduction is still “on the table” this month.
The central bank has decreased borrowing rates by 100 bps since commencing its easing cycle in August of the previous year.
“We also implicitly anticipate a trade agreement with the US will be achieved, and for average tariffs on the Philippines to drop below the 17% reciprocal threshold,” MUFG stated.
The increase in foreign direct investment (FDI) flows and robust infrastructure spending would also support the peso, it mentioned.
FOREX RISKS
However, the research firm indicated potential risks to the peso’s outlook, including a US initiative to tax remittances from non-US citizens, a slowdown in FDI approvals, and domestic political uncertainties.
“We are hesitant to predict further peso strength given these [issues],” it noted.
The proposed 3.5% US tax on remittances could diminish the share of Philippine remittances in economic output by 0.1%, MUFG mentioned.
The US remains the Philippines’ primary remittance source, representing around 40% of the total.
“Our baseline scenario is that the recent Senate election outcomes could decelerate the momentum of reforms, although we believe they are unlikely to alter the policy trajectory, including on infrastructure development,” it stated.
John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, also highlighted risks to the peso’s forecast.
“The P55 level may persist in the short-term, but volatility remains plausible depending on various domestic and international factors,” he mentioned in a Viber message.
He anticipates the peso trading between P54.50 and 56.60 against the dollar in the latter half of the year, barring any shocks.
“The currency’s relative strength signifies enhanced dollar inflows, low inflation, and a dovish inclination from the BSP,” he pointed out. “A mild depreciation bias could emerge if the BSP commences rate cuts ahead of the US Federal Reserve or if imports surge without compensating inflows.”
Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., noted that the recent dollar weakness stemmed from investors divesting their assets.
“As inflation risks and credit concerns in the US continue, we may see the exchange rate sustaining its strengthening,” he expressed in a Viber message.
The dollar index, which gauges its performance against six other major currencies, declined by 0.6% and at 98.75 was just below the three-year low of 97.923 reached in late April, according to Reuters.
It has been volatile for weeks due to US President Donald J. Trump’s fluctuating trade war, and investors have been questioning the currency’s safe-haven status as rising tensions raise fears of a possible US recession.
“Nevertheless, a downside risk for the exchange rate emerges if we adopt a dovish monetary policy approach, while the US may pause rate cuts or increase them to prevent capital outflows and inflation,” Mr. Erece added. “This could exert upward pressure on the exchange rate.”
