The Philippine peso is facing headwinds, with forecasts predicting a decline to ₱59.50 against the US dollar by year’s end. This anticipated weakening stems from a confluence of factors: slowing export growth, potential interest rate cuts by both the Philippine central bank and the US Federal Reserve, and a projected rise in inflation.
Despite these pressures, analysts believe the Bangko Sentral ng Pilipinas (BSP) will actively intervene to prevent the peso from breaching the ₱60 mark. The primary goal is to mitigate imported inflation, safeguarding the cost of goods for Filipino consumers and businesses.
Over the next three to six months, the peso is expected to trade within a relatively narrow band around the ₱59 level. This sideways movement reflects growing expectations of further rate reductions by the BSP, driven by a less optimistic economic outlook.
Recent peso appreciation has been largely attributed to a temporary weakening of the US dollar, but underlying depreciation pressures persist. The currency continues to lag behind key moving averages, signaling a fundamental vulnerability.
A 25-basis-point rate cut by the BSP in February is widely anticipated and largely factored into current market valuations. Weaker growth projections for the latter half of 2025 reinforce this expectation, potentially narrowing the interest rate gap between the Philippines and the United States to just 50 basis points.
Philippine economic growth slowed considerably in the fourth quarter of 2025, registering only 3% – a significant drop from the 5.3% recorded in the same period the previous year. This deceleration brought the full-year GDP growth to a five-year low of 4.4%, falling short of the government’s target range.
BSP Governor Eli Remolona Jr. has indicated a willingness to consider a rate cut at the upcoming February meeting, contingent on determining whether the economic slowdown is demand-driven. However, the central bank has also signaled that its current easing cycle is nearing its conclusion.
Since August 2024, the Monetary Board has already lowered benchmark borrowing costs by a cumulative 200 basis points, bringing the policy rate down to 4.5%. Further cuts are expected, potentially another quarter-point reduction later in the year, to bolster economic activity and maintain inflation within the 2%-4% target range.
The gap between US and Philippine interest rates is projected to narrow to 75 basis points by the end of 2026. With the US Federal Reserve also anticipated to cut rates – by an estimated 50 basis points – there will be limited support for the peso from this dynamic.
Rising inflation in the Philippines is another potential source of peso weakness as the year progresses. After experiencing relatively low inflation in 2025, an uptick is expected, adding downward pressure on the currency.
The country’s external position is also facing challenges, particularly concerning exports. Increased tariffs imposed by the United States could significantly dampen export growth, further weakening the peso.
While merchandise exports saw a substantial increase of 15.2% in 2025, fueled by early shipments and the boom in artificial intelligence-related technology, this momentum is unlikely to continue. Concerns about corruption also continue to erode investor confidence.
The 19% “reciprocal” tariff levied on Philippine exports to the US, implemented in August 2025, is expected to have a noticeable impact on trade. As this tariff takes full effect, export growth will likely moderate in 2026, adding to the peso’s challenges.
