Peso could top DBCC assumptions until 2026 — BSP

The peso-dollar exchange rate could breach the government’s assumptions from this year to 2026 amid expectations of slower rate cuts by the US Federal Reserve, the Bangko Sentral ng Pilipinas (BSP) said.

“The exchange rate could settle slightly above the Development Budget Coordination Committee’s (DBCC) assumptions for 2025 and 2026,” it said in its latest Monetary Policy Report.

The DBCC expects the peso to trade at around 56-58 per dollar this year and 55-58 in 2026.

“This projection is due to the slower pace of monetary policy easing by the United States Federal Reserve (US Fed) and recent near-term movements in the peso,” the central bank said.

The US central bank held interest rates steady on Wednesday and Federal Reserve Chair Jerome H. Powell said there would be no rush to cut them again until inflation and jobs data made it appropriate, Reuters reported.

After the Fed lowered rates three times in the latter part of last year, inflation has largely moved sideways in recent months, but “remains elevated,” the central bank’s policy-setting Federal Open Market Committee, said in a statement after a unanimous decision to keep the benchmark overnight interest rate in the current 4.25%-4.5% range.

Emerging from their first policy meeting during President Donald J. Trump’s second term in the White House, Mr. Powell said Fed officials are “waiting to see what policies are enacted.”

As a result, Fed fund futures still imply around 48 basis points (bps) of easing this year, compared to 49 bps earlier in the week. The next move is not expected until June, when the probability of a cut is put at 73%.

The BSP expects the Fed to deliver up to 75 bps worth of cuts this year and 25 bps for 2026.

The central bank said the peso depreciated in October and November “due to the broad strengthening of the US dollar after the US Fed signaled that there was no urgency to ease policy rates further.”

In 2024, the peso closed at its record low of P59 thrice (on Nov. 21, Nov. 26, and Dec. 19.) It has yet to breach this all-time low, which was first set in October 2022.

“Concerns about the inflationary impact of (US President) Donald J. Trump’s economic policies also weighed on the peso,” the BSP added.

Mr. Trump has proposed several policies that could stoke inflation, such as stricter import tariffs and tighter immigration measures.

He has pledged tariffs as high as 60% on China, 25% on Mexico and Canada and an up to 10% universal tariff.

The BSP said the recent currency weakness was also influenced by slower gross domestic product (GDP) growth in the third quarter, higher outstanding debt, a wider trade and current account deficit, as well as political uncertainty.

“Nonetheless, the peso’s depreciation was partly tempered by sustained structural FX inflows from foreign direct investment and foreign portfolio investment, and higher overseas Filipinos remittances,” it added. — Luisa Maria Jacinta C. Jocson