Peso Depreciation to 59:$1 Likely Amid Strong Dollar Surge

The Philippine peso is showing signs of further weakness, with financial experts predicting it may reach a record low of 59 per US dollar. This forecast is largely driven by a stronger US dollar, which continues to benefit from “safe-haven” demand following recent US political developments. However, analysts believe that while the peso could hit the 59 level, it is unlikely to weaken beyond this point due to the readiness of the Bangko Sentral ng Pilipinas (BSP) to intervene in the currency market.

ING Bank, in a recent report, suggested that while the peso faces downward pressure, there are factors that could help stabilize it. One such factor is a reduction in the country's import bill, aided by falling global oil prices. The BSP has also shown a historical preference for defending the 59-level, making further depreciation less likely in the near term.

The central bank's foreign exchange reserves, which stood at $112.43 billion in October, provide a strong buffer for such interventions. ING notes that the peso's recent struggles are compounded by expectations of rate cuts by the BSP, which could further fuel the currency's decline.

Despite this, analysts believe the peso will remain within the 56 to 58 per dollar range for the remainder of the year. The government's forecast for the peso in 2024 was based on this assumption, but the actual performance of the currency has been worse than expected.

Further complicating matters, the recent cuts to the BSPs policy interest rates—down to 6 percent—are part of a broader dovish monetary cycle that aims to support economic growth. However, with third-quarter GDP growth falling short of expectations, some experts suggest that the BSP may reconsider its approach to rate cuts if the peso's weakness persists.

In a statement, BSP Governor Eli Remolona hinted at a potential 25-basis-point cut in December, which would continue the bank's gradual easing cycle. However, should the peso remain under pressure, the central bank may halt further rate cuts in a bid to curb capital outflows, which could exacerbate the currencys decline.

Final Thoughts

While the peso faces challenges due to the global strength of the US dollar and internal monetary policy moves, the BSP's strong reserves and willingness to defend the currency provide a buffer against further significant depreciation. How the central bank responds to economic data and market trends will play a crucial role in stabilizing the peso moving forward.