BMI sees peso ending 2026 at P63.50:$1

By Katherine K. Chan, Reporter

THE PHILIPPINE PESO could close the year near P63.50 to the dollar as it remains vulnerable to global developments that could further stoke the country’s already heated inflation, Fitch Solutions unit BMI said.

In an e-mailed response to questions, BMI Country Risk Analyst Brandon Ong said they now expect the local unit to end at P63.50 against the greenback in 2026, weaker than their earlier P63 estimate.

“Near-term fundamentals remain weak for the PHP (Philippine peso),” he told BusinessWorld. “The Philippines’ reliance on food and energy imports means that elevated prices will continue to strain its external account, while a more hawkish US Federal Reserve adds to currency pressures.”

From the P58- to P59-a-dollar level prewar, the Philippine peso breached the P64 handle in October after breaking multiple all-time lows. It hit a historic trough of P64.17 against the greenback on Oct. 27 after closing at a record low for a seventh straight trading day.

Year-to-date, the local unit has declined by P4.12 or 6.55% from its P58.79 finish on Dec. 29, 2025.

Financial markets are anticipating another rate hike by the Federal Reserve in December following favorable labor market data in October.

Last month, the Fed left its federal funds rate unchanged at the 3.75%-4% range after delivering its first quarter-point hike in three years in December. However, the US central bank has said they will deliver price stability as they continue to confront elevated inflation.

According to Mr. Ong, the Philippine peso’s continued depreciation will likely continue to drive imported inflation and weigh on domestic consumption.

“Peso weakness will feed most directly into imported inflation,” he said. “The huge consumption sector will come under increasing strain as higher inflation erodes household finances and dampens spending.”

Still high oil prices feeding into fuel, transport fares, and utilities, as well as the peso’s slump pushed inflation to 7.8% in October, the fastest in nearly four years or since February 2023’s 8.6%.

It was also the eighth straight month that inflation was above the Bangko Sentral ng Pilipinas’ (BSP) target, pushing the year-to-date average to 5.6%.

BSP Governor Eli M. Remolona, Jr. said earlier this month that it would be unfavorable if the peso weakens sharply as it risks stoking inflation further.

For Mr. Ong, price pressures from the peso’s weakness could prompt the central bank to extend its tightening cycle beyond this year.

“Sustained depreciation could entrench these cost pressures, prompting the BSP to tighten beyond the 25-bp (basis point) hike to 5.75% that we expect in December,” he said.

Last month, the Monetary Board tightened for a fourth straight meeting in a bid to chase the curve amid stubborn oil-driven price pressures and intensifying risks from a strong El Niño.

It raised its key policy rate by a larger-than-usual 50 bps to a nearly two-year high of 5.5%, bringing its cumulative hikes to 125 bps since it first tightened in April.

The BSP’s Monetary Board will hold its last rate-setting meeting of the year on Dec. 17, while the Fed is set to announce its next policy decision on Dec. 9.

Still, BMI said the peso may gain some relief from holiday-driven remittance inflows toward the yearend. It also expects the local unit to gradually recover to P62.50 against the dollar in 2027 as global energy prices ease.

EXTERNAL BUFFERS
Meanwhile, Mr. Ong said the central bank’s dwindling reserves have narrowed its room to “forcefully” intervene in the foreign exchange market.

“The BSP has limited room to forcefully intervene to support the PHP…” he said. “Further large-scale defense would weaken these buffers and place undue pressure on the Philippines’ external position.”

As of October, the country’s gross international reserves (GIR) declined by 11.7% year on year to an almost four-year low of $97.35 billion. This was the lowest since the $96.149 billion recorded as of end-December 2022.

The central bank uses the GIR by releasing US dollar liquidity when intervening in the foreign exchange market amid episodes of peso depreciation.

Still, Mr. Ong noted that the BSP may instead use verbal intervention to temper the local currency’s depreciation.

“Apart from FX (foreign exchange) intervention, central banks that want to defend currencies may resort to verbal intervention to reduce speculative bets against the currency. President Ferdinand R. Marcos, Jr. has already pledged to defend the peso ‘as hard as possibly can,’” the BMI analyst said.

“Nevertheless, without policy action to back it — or relief from lower global energy prices from an earlier-than-expected US-Iran preliminary agreement — markets could still test policymakers’ resolve,” he added.

On the other hand, Moody’s Ratings Assistant Vice-President for Sovereign Risk Group Young Kim said the Philippines’ remains one of the less externally exposed economies, considering its ample reserves.

“The external vulnerability indicator is one measure where we look at the near-term debt maturing versus how much of the foreign exchange reserve you have,” he told BusinessWorld on the sidelines of an event. “So, at least if you look at the Philippines, you have import coverage under gross reserve of, what, six, seven months relative to some of the other peers that have a much lower reserve (level).”

The BSP’s end-October reserves could cover about 3.1 times the country’s short-term external debt based on residual maturity.

It also translates to 6.1 months’ worth of imports of goods and payments of services and primary income, above the three-month standard.

Mr. Kim noted that the bigger factor lies in how the country will finance its widening current account deficit, with resilience still seen in remittance inflows and services exports receipts.

“At least thus far we’ve seen resilient remittance flows coming in from OFWs (overseas Filipino workers) and also some of the service sector exports that are still resilient,” he said.

The Philippines’ inclusion in the JPMorgan Government Bond Index-Emerging Markets (GBI-EM) by Jan. 29 next year could also increase dollars to the country and partly help ease pressure on its external position.

“The fact that the Philippines, they’re integrating in the JPMorgan index — that might also prompt some inflows, not significant, but still that also (eases) some of that pressure as well,” he said.