By Luisa Maria Jacinta C. Jocson, <\/b>Senior Correspondent<\/i><\/p>\n
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.<\/p>\n
\u201cWe 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,\u201d MUFG Global Markets Research mentioned in a report.<\/p>\n
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 <\/span>the initial quarter of next year.<\/span><\/p>\n The peso finished at P55.721 a dollar on Tuesday, depreciating by 2.1 centavos from its P55.70 close the previous day.<\/p>\n 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\u2019s Ratings downgrade of the US\u2019 triple-A rating.<\/p>\n \u201cPart 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,\u201d MUFG stated.<\/span><\/p>\n \u201cMore 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,\u201d it elaborated.<\/p>\n 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.<\/p>\n MUFG estimates Philippine inflation to average 1.8% this year, below the central bank\u2019s target of 2-4% and its own forecast of 2.3%. Inflation averaged 2% over the first four months.<\/p>\n This was spurred by anticipations of \u201creductions in local rice prices, manageable oil prices, coupled with decreased risks to transport fare and electricity price increases,\u201d MUFG explained.<\/p>\n \u201cThus, 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,\u201d it further stated.<\/p>\n 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 \u201con the table\u201d this month.<\/span><\/p>\n The central bank has decreased borrowing rates by 100 bps since commencing its easing cycle in August of the previous year.<\/p>\n \u201cWe 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,\u201d MUFG stated.<\/p>\n The increase in foreign direct investment (FDI) flows and robust infrastructure spending would also support the peso, it mentioned.<\/p>\n FOREX RISKS \u201cWe are hesitant to predict further peso strength given these [issues],\u201d it noted.<\/span><\/p>\n The proposed 3.5% US tax on remittances could diminish the share of Philippine remittances in economic output by 0.1%, MUFG mentioned.<\/span><\/p>\n The US remains the Philippines\u2019 primary remittance source, representing around 40% of the total.<\/p>\n \u201cOur 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,\u201d it stated.<\/p>\n John Paolo R. Rivera, a senior research fellow at the Philippine Institute for Development Studies, also highlighted risks to the peso’s forecast.<\/p>\n \u201cThe P55 level may persist in the short-term, but volatility remains plausible depending on various domestic and international factors,\u201d he mentioned in a Viber message.<\/p>\n He anticipates the peso trading between P54.50 and 56.60 against the dollar in the latter half of the year, barring any shocks.<\/p>\n \u201cThe currency\u2019s relative strength signifies enhanced dollar inflows, low inflation, and a dovish inclination from the BSP,\u201d he pointed out. \u201cA mild depreciation bias could emerge if the BSP commences rate cuts ahead of the US Federal Reserve or if imports surge without compensating inflows.\u201d<\/p>\n Reinielle Matt M. Erece, an economist at Oikonomia Advisory and Research, Inc., noted that the recent dollar weakness stemmed from investors divesting their assets.<\/p>\n \u201cAs inflation risks and credit concerns in the US continue, we may see the exchange rate sustaining its strengthening,\u201d he expressed in a Viber message.<\/p>\n 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.<\/p>\n It has been volatile for weeks due to US President Donald J. Trump\u2019s fluctuating trade war, and investors have been questioning the currency\u2019s safe-haven status as rising tensions raise fears of a possible US recession.<\/p>\n
\n<\/b>However, the research firm indicated potential risks to the peso\u2019s outlook, including a US initiative to tax remittances from non-US citizens, a slowdown in FDI approvals, and domestic political uncertainties.<\/p>\n