By Katherine K. Chan, Reporter
THE PESO will likely hover around the P62-a-dollar handle until yearend as global headwinds and the country’s persistent trade deficit continue to weigh on the local currency, MUFG Global Markets Research said.
In its latest monthly foreign exchange outlook, the Japanese bank said it now sees the peso trading at P62.20 against the greenback in the third quarter, weaker than its earlier estimate of P61.75.
It projects a slight recovery to P62 per dollar in the fourth quarter, although that remains weaker than its prior forecast of P61.50.
“Our forecast change reflects USD/PHP (US dollar/Philippine peso) recently breaking above the P62 level, and also driven by global factors more salient to PHP such as spikes in oil prices, coupled with the rise and stickiness in US yields,” MUFG said in a report published on Tuesday. “Of course, over here whether these are driven by term premia or expectations of tighter policy through real yields matters a great deal.”
The strong US dollar and inflation concerns fueled by the central bank’s latest outlook dragged the peso to new lows against the greenback, with the local unit sliding past the P62 handle for the first time at end-August.
On Wednesday, the peso weakened anew to a fresh low of P62.565 versus the dollar after losing 16.5 centavos to break its previous historic trough of P62.40 seen on Tuesday, Bankers Association of the Philippines data showed.
It also plunged to its worst intraday showing on record of P62.69, surpassing Tuesday’s P62.40.
Year-to-date, the peso has slumped by P3.775 or 6.03% from its P58.79 finish on Dec. 29, 2025.
According to MUFG, the peso-dollar exchange rate is also largely driven by the Philippines’ trade deficit and interbank rate differentials.
“Our model of USD/PHP shows that the most important factors driving the pair includes the trade deficit and also interbank rate differentials, with a rough rule of thumb that every 10% rise in oil prices weakens PHP by 0.9%,” the bank said.
By the first quarter of 2027, MUFG said the peso may rebound to the P61 level at P61.50 to the dollar, before strengthening further to P61 by the second quarter. However, this remains weaker than its earlier estimates of P61 and P60.50, respectively.
The Development Budget Coordination Committee expects the peso to trade between P60 and P62 against the greenback until 2030.
MUFG flagged the country’s widening trade deficit but noted that this gap should eventually narrow as oil prices ease.
Based on the latest Philippine Statistics Authority data, the country’s trade-in-goods balance, or the difference between the values of exports and imports, stood at a $5.97-billion gap in July, up 34.9% from the $4.43-billion deficit last year.
This brought the seven-month trade deficit to widen year on year to $37.34 billion from $28.91 billion.
BSP Governor Eli M. Remolona, Jr. earlier said the dollar reserves cannot defend the peso back to the P60 handle, describing the exchange rate problem as “very hard to fix” considering the country’s expensive exports.
Still, he noted that the central bank remains present in the foreign exchange market, but is keeping its intervention minimal to prevent exhausting their dollar reserves.
He has said they intervene not to defend a specific exchange rate but to smoothen out the local currency’s sharp inflationary swings.
For MUFG, further monetary policy tightening and some catch up in government spending could buoy the peso versus the dollar.
“With our expectation for BSP to remain hawkish and deliver one more 25 bps (basis points) rate hike, coupled with our forecasts for some tentative improvement in government spending, we are comfortable with our baseline view for USD/PHP to move lower,” it said.
Last week, the Monetary Board tightened for a third straight meeting in a preemptive move aimed at containing inflation risks from the looming “Super El Niño,” a potential wage hike, and global oil price swings.
The BSP raised its key policy rate by 25 bps to an over one-year high of 5%, bringing its cumulative hikes to 75 bps since it first tightened in April.
Mr. Remolona last week said they hope they won’t have to hike more, but kept the door open to further tightening as needed to bring inflation closer to their 3% target.
The Monetary Board will hold two more policy reviews this year — on Oct. 22 and Dec. 17.
However, MUFG noted the peso remains vulnerable to inflation risks that could arise from the “Super El Niño” and potential increase in minimum wages.
“A key risk for PHP is the possibility of a ‘Super El Niño,’ with the NOAA’s (National Oceanic and Atmospheric Administration) latest forecast showing a more than 80% chance of such a weather event happening,” MUFG said.
“This could manifest in the Philippines through more extreme weather patterns with possible spillover effects on both global and domestic food prices, and higher second-round effects through inflation expectations,” it added.
The Philippine Atmospheric, Geophysical and Astronomical Services Administration said the Philippines may encounter a strong El Niño phenomenon in the third quarter, which could intensify into a “very strong” one by October until January next year.