Peso weakness may persist as slowing exports put pressure on external position

FITCH SOLUTIONS unit BMI expects the peso to weaken to the P59.50 level against the dollar by the end of the year due to weaker export growth, further monetary easing from both the Bangko Sentral ng Pilipinas (BSP) and the US Federal Reserve, and faster inflation.

Still, it sees the central bank defending the currency to prevent it from surpassing the P60 level to curb imported inflation, it said in a report dated Feb. 6.

BMI expects the peso to trade sideways at the P59 range in the next three to six months as weak economic prospects have reinforced expectations of further rate cuts from the BSP.

“The recent appreciation stems mainly from broad-based softness in the USD (US dollar), with the dollar index down 1.5% from its peak on Jan. 19. Even with the recent rebound, the peso continues to underperform relative to the 100-day and 200-day moving averages, reflecting persistent depreciation pressure,” it said.

“We think expectations of a 25-basis-point (bp) rate cut by Bangko Sentral ng Pilipinas in February are already priced in. The weak second-half 2025 growth reinforces this narrative, which will bring the Philippines-US policy rate differential back to its narrowest at 50 bps.

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.”

Philippine gross domestic product (GDP) growth slowed to 3% in the fourth quarter of 2025 from 5.3% in the same period a year prior and the revised 3.9% in the third quarter. This brought the full-year average to a five-year low of 4.4%, well below the government’s 5.5%-6.5% goal.

BSP Governor Eli M. Remolona, Jr. earlier said that a rate cut is possible at the Monetary Board’s Feb. 19 meeting, depending on whether the slowdown in economic growth last year was caused by weak demand.

However, the central bank last week reaffirmed that it was nearing the end of its current easing cycle. The Monetary Board has lowered benchmark borrowing costs by 200 bps since August 2024, bringing the policy rate to 4.5%.

BMI said the BSP is likely to follow up the expected 25-bp cut this month with another quarter-point reduction within the year to support growth and as inflation is expected to remain within their 2%-4% annual target.

“We expect the US-Philippines policy rate differential to remain narrow at 75 bps by end-2026, which is tighter compared to historical levels… Our Americas team also forecasts the Fed to cut rates by 50 bps in 2026, as it approaches the end of an easing cycle, which means there will be little relief to the peso on this front,” it said.

An expected pickup in Philippine inflation this year following last year’s low prints could also be a source of weakness for the currency towards the end of the year, it added.

The peso will remain weak as the country’s external position could also come under pressure this year as exports could begin to slow down due to the higher tariffs imposed by the US.

“In 2025, merchandise exports rose by 15.2% y-o-y (year on year), supported by export frontloading and AI (artificial intelligence)-driven tech exports, which also drove a narrowing of the current account deficit from 4.0% in 2024 to an estimated 3.4% in 2025. Even so, the peso depreciated by 1.5% y-o-y in 2025 as corruption concerns weighed on investor confidence,” BMI said.

“Looking ahead to 2026, the tailwind from exports on the peso will fade. While the AI boom should provide support to exports, we expect export frontloading to fade. The 19% ‘reciprocal’ tariff levied on Philippine exports to the US since August 2025 will start feeding through and dampen trade with the US — the Philippines’ largest export market. Against this backdrop, we maintain that export growth will moderate in 2026, which will weigh on the peso.” — Aaron Michael C. Sy