Peso seen to stay weak amid trade headwinds

MANILA, Philippines, February 14 ------ The peso is expected to remain under pressure this year, weighed down by moderating export growth, expected monetary easing and rising inflation, although central bank intervention is likely to limit sharper downside moves, according to research and analysis firm BMI.

In a report, the Fitch Solutions unit forecasts the peso to weaken by about 1.3 percent to around 59.50 per dollar by end-2026, from an average of 58.76 currently. In the near term, the local currency is seen trading sideways around 59 per dollar over the next three to six months, following bouts of volatility earlier this year. “Even with the recent rebound, the peso continues to underperform relative to the 100-day and 200-day moving averages, reflecting persistent depreciation pressure,” BMI said.

The peso hit a record low of 59.46 per dollar on Jan. 15 before recovering modestly to 58.585 on Feb. 6, reflecting a slight appreciation of 1.5 percent. BMI attributed the recent rebound mainly to broad-based softness in the greenback, with the dollar index down about 1.5 percent from its January peak. The research firm said expectations of a 25-basis-point rate cut by the Bangko Sentral ng Pilipinas (BSP) in February are already priced in, particularly as weak growth in the second half of 2025 reinforces the case for further policy support. “We expect the countervailing forces of a weaker dollar and the BSP cutting rates ahead of the US Fed to keep the peso range-bound over the next few months,” the Fitch Solutions unit said.

Over the long term, BMI expects the country’s external position to come under renewed pressure in 2026. While merchandise exports grew by a strong 15.2 percent year on year in 2025, supported by export front-loading and AI-driven technology shipments, the tailwinds are expected to fade. The report noted that the 19-percent “reciprocal” tariff imposed by the United States on Philippine exports since August 2025 would increasingly weigh on trade with the country’s largest export market, dampening overall export growth and the peso. Monetary policy dynamics are also expected to offer little relief. BMI sees the BSP cutting rates by a cumulative 50 basis points in 2026 as growth slows and inflation remains within the central bank’s two to four percent target range.

The Monetary Board slashed the country’s key policy rate by 25 basis points to 4.50 percent at its December meeting last year. The BSP has so far reduced borrowing costs by 200 basis points since it began its easing cycle in August 2024. At the same time, the US Federal Reserve is also projected to cut rates by 50 basis points, keeping the bilateral rate differential narrow at around 75 basis points by end-2026. Inflation trends add another layer of pressure. BMI expects Philippine inflation to pick up in 2026, flipping the consumer price index differential in favor of the US, which, all else equal, would further weigh on the peso. That said, BMI stressed that the BSP is likely to step in to curb excessive volatility, particularly if the peso weakens beyond P60 per dollar. “We think the BSP will intervene against huge downside volatility beyond P60 per dollar to curb imported inflation. BSP has sufficient reserves to defend the currency with gross international reserves remaining robust, covering more than seven months of imports as of December 2025,” it said. Risks to the outlook are skewed toward a weaker peso, BMI added. A more hawkish-than-expected US Fed would place additional depreciatory pressure on the currency, while any cooling in AI-related trade could further weaken the current account and weigh on the peso.

Source: philstar.com