BSP: Peso seen to weaken further

MANILA, Philippines — The peso may weaken further in 2025 and 2026, settling slightly above the government’s foreign exchange rate assumptions, as the US Federal Reserve might take a slower approach to monetary policy easing.

In its latest Monetary Policy Report, the Bangko Sentral ng Pilipinas (BSP) said the exchange rate could go beyond the Development Budget Coordination Committee (DBCC)’s assumptions for 2025 and 2026.

“This projection is due to the slower pace of monetary policy easing by the US Federal Reserve and recent near-term movements in the peso,” the central bank said.

As of December 2024, the DBCC projects the peso to hit 56 to 58 against the greenback for 2025 and P55 to 58 per dollar for 2026.

The peso depreciated by 4.3 percent to 57.845 to $1 from the end-2023 level of 55.37 to $1.

According to the BSP, the local currency depreciated in the fourth quarter last year as the dollar strengthened after the Fed signaled it was in no rush to ease policy rates further.

“Concerns about the inflationary impact of US President-elect Donald Trump’s economic policies also weighed on the peso,” it said.

The BSP anticipates the US Fed to implement 75 basis points of rate cuts in 2025 and 25 bps in 2026. The US central bank left policy rates unchanged on Wednesday, with Federal Reserve Chair Jerome Powell saying that there would be no rush in cutting borrowing costs this year.

Domestically, the BSP said that the peso’s weakness was compounded by slower third-quarter gross domestic product growth, a higher outstanding national government debt in September, a wider trade-in-goods deficit and a larger balance of payments deficit in October. Heightened political uncertainty added pressure on the peso.

“Nonetheless, the peso’s depreciation was partly tempered by sustained structural forex inflows from foreign direct investments and foreign portfolio investments, and higher overseas Filipinos remittances,” the BSP said.

Analysts have been forecasting that the peso will breach the critical 60 to $1 threshold amid heightened volatility as Trump’s aggressive protectionist stance could exacerbate further depreciation.

The peso’s performance against the greenback reflects ongoing external pressures and market dynamics, which influence emerging market currencies.

The local currency closed at P58.28 to $1 yesterday, strengthening by 14 centavos from its 58.425-to-$1 finish on Tuesday.