Peso seen to strengthen ahead of Policy Rate Decision

The peso is poised to strengthen further this week as markets anticipate another interest rate cut from the Bangko Sentral ng Pilipinas (BSP) at its policy meeting on Thursday.

On Friday, the local unit closed at P56.95 per dollar, up by one centavo from its P56.96 finish on Wednesday, based on data from the Bankers Association of the Philippines. Week on week, the peso advanced by 11.5 centavos from its August 15 close of P57.065.

Analysts attributed the peso’s recent gains to confidence in the country’s fundamentals, following Japan-based Rating and Investment Information, Inc.’s decision to reaffirm the Philippines’ investment-grade “A-” rating with a stable outlook.

“This was a continued vote of confidence on the country’s economic and credit fundamentals from the point of view of international investors and creditors,” said Rizal Commercial Banking Corp. Chief Economist Michael Ricafort.

Still, the peso traded cautiously amid lingering external pressures, including expectations of hawkish signals from the U.S. Federal Reserve’s annual Jackson Hole symposium.

Philippine Institute for Development Studies Senior Research Fellow John Paolo Rivera noted that while local inflation has eased, the peso remains exposed to “global U.S. dollar strength and risk-off sentiment” due to geopolitical tensions and oil market volatility.

U.S. Fed Chair Jerome Powell signaled that rate cuts may be on the table at the Fed’s September meeting, though he cautioned that inflation risks persist. Markets now assign an 85% probability of a quarter-point cut next month, with a second reduction expected in December.

In the Philippines, BSP Governor Eli Remolona Jr. earlier indicated that another rate cut is “quite likely” at this week’s policy meeting, which would mark the central bank’s third consecutive reduction since April. Since August 2024, the Monetary Board has lowered benchmark rates by a cumulative 125 basis points, bringing the key rate to 5.25%.

Ricafort forecast the peso to trade between P56.75 and P57.25 this week, while Rivera projected a broader range of P56.50 to P57.50, depending on oil price movements, remittance inflows, and U.S. economic data.