Peso seen rallying to 54:$1-level

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MANILA, Philippines – The Philippine peso could extend its gains to next year, Japanese bank MUFG said in a new report that sees the local currency rallying to the 54-level against the US dollar.

MUFG said the peso’s strength that beat the greenback in May would likely persist in the coming months, adding a forecast on the local unit to appreciate to 54.50 against the US dollar by the first quarter of 2026.

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This, despite the ongoing easing cycle of the Bangko Sentral ng Pilipinas (BSP). MUFG said it forecasts more local policy rate cuts worth a total of 75 basis points for the remainder of 2025, as inflation is expected to remain well within the central bank’s 2 to 4 percent target this year.

“We continue to forecast PHP to strengthen against the USD, reflecting low inflation, continued space for rate cuts, FDI (foreign direct investment) improvement, a likely trade deal with the US, coupled with strong infrastructure spending,” the bank said.

On Tuesday, the peso ended the session at 55.721, weaker than its previous finish of 55.7. As it is, the local unit was trading at a much stronger level than the Marcos administration’s foreign exchange assumption of 56 to 58 for this year.

While it expects the local currency to rally to the 54 territory, MUFG said it was reluctant to forecast further peso strength despite expectations of persistent dollar weakness due to three reasons.

First, the Japanese bank estimated that the 3.5-percent remittances tax drafted in the US House Tax bill could cut such a key dollar inflow to the Philippines by 0.1 percent of gross domestic product (GDP).

Second, MUFG said approvals of job-generating foreign capital have slowed, adding that this could weigh on actual flow of foreign direct investments in 2026.

Lastly, the bank said domestic political risks could increase into next year, a development that might worry foreign investors.

“Our base case is for the recent Senate Election results to slow the pace of reforms but we think it is unlikely to change the trajectory of policy including on infrastructure build-out,” it explained.