A customer swaps US dollars for pesos at a foreign exchange outlet in Manila. STAR / File
To boost economy
MANILA, Philippines — The Bangko Sentral ng Pilipinas (BSP) may start easing its stance in defending the peso by the second half of the year to allow exports to grow and the economy to expand, according to a research group.
In an analysis, HSBC Global Research said the BSP would likely consider bringing down its rate differential with the US Federal Reserve before the end of 2025 for growth purposes.
HSBC believes the BSP has to loosen its defense of the peso to raise exports value and improve the balance of payments to benefit the economy.
It said the Philippines is one of the economies safe from any tariff attack from the US, unlike countries like China and Mexico. As such, the BSP has room to trim the peso’s overvaluation by piling up on reserves when the local currency falls in the foreign exchange market.
However, HSBC said the BSP would only start thinking about letting the peso go weaker against the dollar by the second semester. Recently, the BSP has shown its preference to defend the local currency by keeping interest rates untouched.
Once the BSP loosens up, HSBC expects the peso to breach the 59 to $1 level, boosting the value of industries reliant on the dollar like electronics, services and tourism.
“We think such shift in the first half of 2025 looks unlikely, (and) this is clearly demonstrated by BSP’s rate hold in February and intervention activities since fourth quarter of 2024,” HSBC said.
“But we expect such shift to happen in second half of 2025 and forecast dollar-peso exchange to break above 59 in the third quarter,” it added.
HSBC said the Philippines can carry the burden of a weak peso rather than a growth slowdown.
The bank added that this could be a stroke of genius for the BSP, too, as it can lead to purchases in dollar assets, more hedging for importers and limited room for speculators to short the peso.
HSBC said the BSP can let up on forex interventions when the dollar is surging. Further, the BSP can accumulate more reserves when the peso is striking.
The economy – as measured by gross domestic product – grew by 5.6 percent in 2024, falling below the government’s target of six to seven percent.
Based on data from the Philippine Statistics Authority, exports slipped by almost one percent to $73.21 billion in 2024, from $73.62 billion in 2023, as shipments of electronic products declined.
The peso yesterday remained within the 57 to $1 level despite weakening by 12.2 centavos to close at 57.93 from Monday’s 57.808.
The local currency opened at 57.9 and hit an intraday low of 57.95 and an intraday high of 57.87. Trading volume remained heavy at $1.379 billion yesterday from $1.169 billion last Monday.