The Philippine peso has weakened by nearly 6.2% year-to-date, but BMI predicts it will reverse its losses in the fourth quarter once the US Federal Reserve begins its monetary loosening cycle in September. The peso is expected to reach P56.50 per dollar by yearend, implying a 4% strengthening from the current spot rate of P58.70 a dollar. The peso closed at P58.58 versus the dollar on Thursday, rising by 14.5 centavos from the previous day's finish. However, year to date, the peso is still down by P3.21 from its end-2023 close of P55.37. The peso has been trading at the P58 range since late May as the Fed has continued to signal a 'higher for longer' policy stance due to sticky inflation in the world's largest economy, which has propped up the dollar against major and EM currencies. The Bangko Sentral ng Pilipinas' (BSP) comments on possibly starting its own easing cycle before the Fed have also contributed to the peso's weakness against the greenback. Fed officials at their last meeting acknowledged the US economy appeared to be slowing and that 'price pressures were diminishing,' but still counseled a wait-and-see approach before committing to interest rate cuts. Investors broadly expect a quarter-percentage-point rate cut at the Fed's Sept. 17-18 meeting and another one in December. The BSP's recent dovish signals will also contribute to continued peso volatility, BMI added. The BSP could cut rates by 25 bps in the third quarter and by another 25 bps in the fourth quarter. For 2025, expectations of further monetary easing in the US will help the peso 'regain ground,' BMI said. It forecasts the peso to settle at P55 per dollar at end-2025. Risks to their currency outlook include the Philippines' large current account deficit and elevated inflation, it said. [4181d0ee]
The recent strength of the peso is a positive development for the Philippine economy and the business process outsourcing (BPO) industry, as it makes the country's services more competitive in the global market. A stronger peso also benefits consumers by making imported goods cheaper [f6cfe28a].
The peso's performance is closely tied to the policies of the US Federal Reserve. The central bank's dovish comments and the possibility of a rate cut have put downward pressure on the US dollar, leading to the peso's recent rally. The market will continue to monitor the Fed's actions and statements for further indications of future rate cuts [f6cfe28a].
In other news, the closure of Sofitel Philippine Plaza was a business decision made by the hotel owners due to a failure to secure a lease extension. The closure is intended to facilitate major rehabilitation work to address structural problems. The Government Service Insurance System (GSIS) will need to decide what to do with the empty hotel [ff3c7b30].
On the fiscal front, the government has released 86 percent of the national budget allocation for this year [ff3c7b30]. In terms of foreign direct investment (FDI) inflows, February saw a surge to its highest level in 26 months [ff3c7b30].
The Senate is currently working on a mining fiscal regime that includes more tiers and lower rates [ff3c7b30]. Meanwhile, the SM Group is set to open SM City Caloocan and has plans to add more malls [ff3c7b30]. The Bases Conversion and Development Authority is also planning to establish an integrated public transport system in Clark [ff3c7b30].
It's not all about the economy, as Japanese boxer Naoya Inoue made a remarkable recovery from a knockdown and secured a sixth-round TKO win against Luis Nery [ff3c7b30].