Philippine peso strengthens on broad dollar weakness, inflation surprise

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Philippine peso strengthens on dollar weakness

Highlights

The Philippine peso rises 56.5 centavos to close at P62.97 per dollar, its strongest since Oct. 14, driven by dollar weakness and lower oil prices.
Philippine inflation jumps to 7.8% in October, surpassing expectations but staying within Bangko Sentral ng Pilipinas' 7.1%-8.1% forecast range.
Economists see longer-term risks for the peso, with forecasts of P66 per dollar by end-2027 as FX reserves drop 8.78% and the trade deficit widens to $47.16 billion.

Peso rally driven by dollar slide and lower oil prices

As reported by BusinessWorld Online, the local currency surges by 56.5 centavos to close at P62.97 per dollar from P63.535 a day earlier, based on Bankers Association of the Philippines data. It marks the peso's strongest finish in three weeks, or since its P62.87 close on Oct. 14.

The peso opens the session at P63.333, trades as strong as P62.90 and as weak as P63.35. Dollar turnover rises to $2.005 billion from $1.32 billion in the previous session.

A trader says the peso gains as markets react to a hotter-than-expected consumer price index reading and to broad dollar weakness after the U.S. election result. Philippine headline inflation accelerates to 7.8% in October from 7.2% in September and 1.7% a year earlier, above the 7.6% median estimate in a BusinessWorld poll but within the Bangko Sentral ng Pilipinas forecast range of 7.1% to 8.1%.

Rizal Commercial Banking Corp. Chief Economist Michael L. Ricafort says lower global crude prices also support the peso. Reuters reports the dollar falls to a more than one-month low after Democrats' overwhelming U.S. midterm election victory, while oil prices and Treasury yields also move lower.

Longer-term risks point to renewed peso weakness

Despite Thursday's rebound, economist Victor A. Abola says the peso could still weaken to P66 per dollar by end-2027 as foreign exchange reserves decline and the trade deficit widens. Speaking at a University of Asia and the Pacific economic briefing on Wednesday, he says the central bank may have limited room for further rate hikes as inflation begins to ease.

The country's gross international reserves stand at $99.494 billion as of end-September, the lowest in three years, down 8.78% from a year earlier and 5.1% from the previous month. Mr. Abola expects the peso to end the year at P63.50 before weakening further through 2027, after the currency already breaches the P64 level for the first time on Oct. 27 and closes at a record low of P64.17.

He points to nondeliverable forward activity by foreign investors and the Philippines' large import-dependent trade gap as structural pressures on the currency. Data from the Philippine Statistics Authority show the trade deficit widens to $47.16 billion in the first nine months from $37.57 billion a year earlier.

Mr. Abola says a weaker peso could still benefit exporters, domestic producers and households receiving remittances from overseas Filipino workers. He also says a final 25-basis-point rate increase by the BSP in the first quarter of 2027 remains a likely scenario before policy easing begins, especially if inflation slows as global oil prices decline.

Our earlier report on planned Philippine sovereign bond reforms explained how a new pricing convention for peso government bonds and the targeted inclusion in J.P. Morgan’s Government Bond Index-Emerging Markets could improve comparability, liquidity, and broaden foreign participation. It also stressed that any lasting benefit for the economy still depends on global rates, exchange-rate expectations, fiscal credibility, and deeper structural reforms so capital-market gains translate into real investment and productivity growth.

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