High energy prices, strained financial resources turning up depreciation pressure
The Philippine peso could weaken to 66 per dollar next year as the currency remains vulnerable to a strengthening US dollar amid the economy’s fragile external position, Singapore-based United Overseas Bank Ltd. (UOB) said.
The peso could fall to the 64-per-dollar level in the fourth quarter, before weakening further to 65.5 in the first quarter of 2027, UOB said in a research note.
The bank expects the currency to slide to 66 in both the second and third quarters of next year.
The peso is not alone in facing pressure. UOB also expects the Indian rupee, Thai baht and Indonesian rupiah to weaken as the dollar gains strength.
Those currencies “are more vulnerable to resurgent US dollar strength,” the bank said, citing their external financing needs and higher energy prices, which could further erode fiscal buffers.
The peso faced renewed pressure when the US Federal Reserve (Fed) delivered its first rate hike since 2023, though the local unit has since recovered after sinking near the 63-per-dollar territory.
Higher US interest rates could make dollar-denominated assets more attractive, putting further pressure on the peso.
BSP hike
The Bangko Sentral ng Pilipinas (BSP) last month raised its benchmark rate by a quarter percentage point to 5 percent, its third increase since the current tightening cycle began. The BSP called the move a preemptive response to emerging inflation risks.
Even so, the peso is now trading well beyond the 60-to-62-per-dollar range assumed by the Marcos administration for this year, underscoring the currency’s persistent weakness despite the BSP’s rate increases as rising global oil prices bloat the Philippines’ import bill.
Looking ahead, the UOB said it expects the central bank to keep its key rate unchanged for now at 5 percent, adding that the Philippines remains in the group of economies with “rate buffer.”
“Domestic policy rates remain above the Fed’s and central banks are expected to mirror Fed moves to maintain the carry cushion and stabilize capital flows,” the bank said.
“Notably, most economies in this cohort carry current account and fiscal deficits, which may subject their currencies to a larger drawdown during a Fed tightening cycle, notwithstanding the nominal rate buffer,” it added.
