Philippine peso seen trading rangebound as external risks pressure year-end outlook

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Philippine peso year-end outlook

Highlights

Peso closed at P63.74 per dollar on Friday, up 11 centavos day-on-day but still down 12.5 centavos week-on-week after hitting P64.17 on Oct. 27.
BSP reserves fell 8.31% year-on-year to $99.997 billion in September, lowest since September 2020, with year-end forecasts for the peso in P62.30–P64.50 range.
BSP raised rates by 50 basis points on Oct. 22, marking 125 basis points of increases since April as September inflation surged to 7.2%, a three-and-a-half-year high.

Weekly trading range and policy backdrop

As reported by BusinessWorld Online, the peso is expected to stay rangebound this week, with the foreign exchange market watching developments in the U.S. and the Middle East as well as the U.S. midterm elections.

On Friday, the local currency rose by 11 centavos to close at P63.74 per dollar from P63.85 a day earlier, based on Bankers Association of the Philippines data. Even so, it remained weaker by 12.5 centavos week on week from its P63.615 finish on Oct. 23 after earlier sliding to a record-low close of P64.17 on Oct. 27.

The peso recovered in the middle of the week after President Ferdinand R. Marcos, Jr. said the government would support the currency and that the country has adequate foreign exchange reserves. The Bangko Sentral ng Pilipinas, however, maintains that it does not target a specific exchange rate and intervenes only to smooth sharp swings that could fuel inflation.

BSP data showed gross international reserves fell 8.31% year on year to $99.997 billion as of September, the lowest level in three years or since September 2023. A trader said the peso also drew support on Friday from a weaker dollar index after dovish signals from the U.S. Federal Reserve and from profit taking before the long weekend.

External headwinds shape year-end forecasts

Analysts say external developments are likely to keep pressure on the peso through year-end, although remittance inflows, business process outsourcing receipts, and the BSP's hawkish policy stance may offer support. Reyes Tacandong & Co. Senior Adviser Jonathan L. Ravelas said the currency may trade around P63.30 to P64.50 toward the end of 2026, while Union Bank of the Philippines Chief Economist Ruben Carlo O. Asuncion sees it ending the year near P62.30.

China Banking Corp. Chief Economist Domini S. Velasquez said Chinabank's year-end forecast stands at P63.70 and that a sustained improvement in economic fundamentals remains essential to restoring investor confidence. She also said the peso's recent recovery reflected a weaker U.S. dollar index, the Federal Reserve's decision to keep rates unchanged, and the President's commitment to defend the currency.

The inflation backdrop remains a key concern for policymakers. The BSP raised rates by 50 basis points on Oct. 22, its fourth straight meeting increase, bringing cumulative hikes since April to 125 basis points, while September headline inflation hit 7.2%, a three-and-a-half-year high.

Bank of the Philippine Islands Lead Economist Emilio S. Neri, Jr. said a sustained peso decline could raise the possibility of an off-cycle rate increase because of inflation risks. Still, Mr. Asuncion and Mr. Ravelas said the central bank is more likely for now to rely on calibrated foreign exchange intervention, liquidity management, and clear policy guidance to contain volatility and keep inflation expectations anchored.

In our earlier article on Philippine shares rebounding despite peso weakness, we noted that the PSEi rose on bargain hunting even as the currency slid to a fresh record low near the P63-per-dollar level. We also highlighted how cautious sentiment persisted amid broader macro uncertainty, while foreign buying briefly returned after several sessions of outflows.

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