THE Philippine peso could strengthen further against the dollar given the dovish stance on monetary policy by the Bangko Sentral ng Pilipinas (BSP), according to the Bank of America.
In its latest brief, the Bank of America said it has revised its outlook for the Philippine peso to P56 to the US dollar this year from its initial estimate of P57 to the greenback.
This expectation of a further strengthening of the peso, the bank said, was also supported by the BSP’s recent decision to cut key policy rates.
“PHP [Philippine peso] has strengthened vs the USD (US dollar), but less so compared to peers in the region, taking cues from the BSP’s rate cut in the last meeting and dovish guidance for another possible cut this year,” Bank of America said.
The bank also noted expectations that the US Federal Reserve will soon reduce its policy rates, leading the peso to appreciate against the US dollar.
It also noted geopolitical concerns that could only be temporary and lead to the peso’s appreciation against the greenback.
“With the Fed cutting cycle likely commencing soon, PHP could still appreciate vs the USD over time, which would keep BSP relatively comfortable on FX [foreign exchange moves,” the Bank of America said.
“Geopolitical concerns need to be watched as another trigger as the relief from earlier agreements on the resupply missions did not last for long,” it added.
On the macroeconomy, the Bank of America said the country’s current account flows may have fluctuated but is already tracking better compared to last year.
However, it noted that foreign direct investment (FDI) flows slowed in July. This did not saddle the country’s Balance of Payments (BOP), which remained in surplus on the back of government debt funding flows.
Meanwhile, Bank of America said the BSP decision to cut policy rates by 25 basis points and the dovish stance of monetary policy is in support of the domestic economy.
In the second quarter, household final consumption grew 4.6 percent, the same rate posted in the first quarter which was initially deemed the slowest in 14 years, excluding the pandemic.
“Lower rates in the Philippines have raised the likelihood of even a narrower interest-rate buffer against USD rates. That may gain importance as a factor for corporate hedging behavior once the USD stabilizes,” Bank of America said.
“This pressure could increase if USD strength picks up or US yields move higher again, increasing PHP sensitivity to the US policy outlook,” it added.
The Philippine peso has been strengthening against the US dollar and is trading at its strongest levels since March 2024. On Wednesday, the peso closed at P56.5 to the greenback.
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