MUFG: Peso to regain strength by early 2026

The Philippine peso is projected to gradually strengthen against the US dollar in the coming months, regaining ground lost in July and potentially reaching the P56:$1 level by the first half of 2026, according to Japanese banking group MUFG.

In its August 2025 foreign exchange outlook, MUFG noted that the peso weakened significantly in recent weeks, closing July at P58.31:$1—down from P56.31 at the end of June. The report cited regional pressure on currencies, with the peso and the New Taiwan dollar identified as the underperformers during the period.

Despite the short-term decline, MUFG maintained a positive medium-term view for the peso, citing strong domestic fundamentals and easing inflation.

“We continue to expect the Philippine peso to strengthen against the US dollar over time, both because the positive domestic drivers we have highlighted have not changed, and also because we do not assume tail risks such as sharp spikes in oil prices from Russia secondary sanctions will materialize,” the bank said.

MUFG now forecasts the peso to reach P57.50 in the third quarter, improve to P57.00 in the fourth quarter, and appreciate further to P56.50 by the first half of 2026.

Key domestic drivers cited include the Bangko Sentral ng Pilipinas’ (BSP) inflation management, stable growth outlook, and expectations of rising foreign direct investment. MUFG estimates headline inflation to average 1.8 percent in 2025, supported by declining rice and transport prices.

The Japanese bank also projects continued infrastructure activity and does not expect recent political developments to derail economic policy or growth prospects.

On the monetary policy front, MUFG expects the BSP to cut interest rates by a cumulative 50 basis points this year, bringing the benchmark rate down to 4.75 percent by year-end from the current 5.25 percent.

The peso's near-term performance will still be shaped by global factors, including US monetary policy and international trade conditions. MUFG noted that while US tariffs on Philippine exports were higher than previously assumed, their net economic impact remains manageable.

“Overall, the key changes at the margin for our peso forecasts are mainly global in nature,” the report added.

The BSP’s remaining monetary policy meetings for the year are scheduled for August, October, and December.