Peso seen strengthening to 54.5:$1

MANILA, Philippines, June 4 ------ The peso is projected to continue appreciating against the dollar driven by benign inflation, more policy easing by the Bangko Sentral ng Pilipinas (BSP) and improving investor sentiment, according to MUFG Bank. In its latest foreign exchange outlook, MUFG said the peso could reach 54.50 to $1 by the first quarter of 2026 reflecting expectations of further BSP rate cuts and steady macroeconomic fundamentals. “We forecast the peso to strengthen to 54.50 against the dollar by the first quarter of 2026,” MUFG said in its report, adding that the local currency could breach the 55 to a dollar level in the second half.

MUFG said domestic inflation pressures in the Philippines have been softer than expected, providing the BSP further room to cut interest rates to support the economy. The Japanese bank expects the Philippine central bank to cut rates by another 75 basis points this year, bringing the key policy rate down to 4.75 percent by end-2025. MUFG forecasts inflation to average just 1.8 percent this year, well below the BSP’s two to four percent target band, amid lower rice prices, manageable oil costs as well as minimal fare and electricity hikes.

The peso’s strength will also be supported by a likely trade deal with the US, which the bank assumes would reduce average tariffs on Philippine exports to below the 17-percent reciprocal level. Additionally, MUFG expects an uptick in foreign direct investments (FDI) and continued infrastructure spending to help support the local currency.

On the other hand, the bank cited three risks to the outlook. This includes the proposed 3.5-percent remittances tax under the US House Tax bill, which could reduce Philippine remittances by 0.1 percent of gross domestic product.

Source: philstar.com