DBS Group Research, led by Philip Wee, has revised its forecast for the Philippine Peso, projecting the USD/PHP exchange rate to reach 62.7 by the end of 2026, up from the previous estimate of 57.8. This adjustment reflects ongoing external and domestic pressures, notably the closure of the Strait of Hormuz following Operation Epic Fury, which led to higher oil prices and significant supply disruptions. As a result, the Philippine economy, heavily dependent on imported oil from the Gulf, has experienced a return to record trade deficits and a sharp increase in inflation [1].
The report highlights that USD/PHP first traded above 60 one month after the Strait of Hormuz was closed, underscoring the currency's vulnerability to external shocks. Consumer Price Index (CPI) inflation surged to 7.2% year-on-year (2.6% month-on-month) in April, up from 4.1% year-on-year (1.4% month-on-month) in March. This spike in inflation prompted the Bangko Sentral ng Pilipinas (BSP) to reverse its earlier monetary easing, implementing a 25 basis point rate hike to 4.50% on April 23, after having cut rates by 25 basis points on February 19 [1].
Looking ahead, the BSP anticipates that inflation for May will rise further to a range of 7.1-7.9%, well above its 2-4% target range. Despite these inflationary pressures, the BSP remains hesitant to repeat the large interest rate hikes seen in 2022, citing concerns over weaker economic growth [1].
The combination of persistent external shocks, elevated inflation, and cautious monetary policy has darkened the outlook for the Philippine Peso, leading to the upward revision in the USD/PHP forecast [1].
CONCLUSION
DBS's upward revision of the USD/PHP forecast to 62.7 by end-2026 signals significant concerns over the Philippine Peso's outlook amid surging inflation and external shocks. The BSP's cautious stance on rate hikes, despite persistent inflation, suggests ongoing challenges for currency stability and economic growth.