‘Modest’ peso recovery to 58:1$ seen in H1 2026

The peso could return to the 58-per-dollar level in the first half of 2026 as government spending rebounds from a graft probe-driven slump and investor confidence improves, MUFG Global Markets Research said.

But any appreciation may be limited by the central bank’s increasingly pro-growth tilt, the Japanese lender added, noting that monetary authorities are moving to bolster the economy amid weak fiscal support.

“We forecast peso to recover modestly, but this will be capped by a still dovish BSP (Bangko Sentral ng Pilipinas),” MUFG said in a note on Tuesday, adding that the currency’s weakness continues to reflect negative business sentiment as a corruption scandal undermines the state’s ability to support economic growth.

“One key driver of the divergence between a weaker dollar and underperformance in the peso has been a sharp slowdown in government spending, including in public infrastructure, and the resultant impact this has had on capital inflows such as into the equity markets,” it added.

Adjustments

After data showed the economy expanding just 4 percent in the third quarter—its slowest pace in over four years—President Marcos’s economic team acknowledged that the official macroeconomic targets may need adjustment to reflect the challenging realities created by the antigraft crackdown.

The probe has implicated lawmakers, members of the Cabinet, government engineers and some private contractors. Last week, the Bureau of the Treasury reported that public expenditures contracted by nearly 8 percent in October while revenues sagged by 6.6 percent, after the sweeping cleanup delayed infrastructure projects.

BSP Governor Eli Remolona Jr. had said another rate cut in December was “possible,” though he ruled out the kind of aggressive easing that might fuel fears the economy was veering toward a hard landing amid the governance woes. Those reductions, in turn, could make local yields less appealing to foreign capital, which could weigh on the peso.

As it is, a weak peso cuts both ways for the Philippines. It can lift remittance inflows from migrant Filipino workers, fueling purchasing power in the consumption-reliant economy.

But it also risks fanning import costs and reigniting inflation. Prolonged currency weakness, meanwhile, could inflate the peso value of foreign debts held by both the government and private companies.

The BSP earlier signaled it would let market forces largely determine the exchange rate, intervening in the foreign exchange market only if a prolonged depreciation threatens to fuel imported inflation, rather than smoothing out daily volatility.

MUFG said the softer growth, uncertain fiscal impulse and continued negative output gap it forecasts in the Philippines implies the BSP is likely to remain dovish moving forward.

“We have another 50 basis points of rate cuts in our forecast profile, and we see the risk tilted towards more cuts,” the bank said.