The Bangko Sentral ng Pilipinas (BSP) may be poised to adopt a less defensive stance on the Philippine peso in the latter half of 2025, according to recent analysis by HSBC Global Research. This potential shift in currency policy could have significant implications for the country’s economic growth and export competitiveness.
BSP’s Evolving Currency Strategy
HSBC economists Aris Dacanay and Lenny Jin suggest that the BSP might allow greater peso volatility to support economic expansion. This move would involve narrowing the policy rate differential with the U.S. Federal Reserve, potentially leading to a weaker peso against the dollar[1].
“A more competitive PHP (Philippine peso) benefits both exports and FDI (foreign direct investments),” the HSBC report noted. The analysts predict that this shift could occur in the second half of 2025, with the exchange rate potentially breaking above the record high of P59:$1 in the third quarter[1].
Economic Implications of a Weaker Peso
A depreciated peso could boost the Philippines’ export competitiveness, particularly in the services sector. HSBC’s analysis indicates that this strategy might help reverse the declining trend in the country’s manufacturing sector relative to other ASEAN economies[1].
However, the potential inflationary pressures from a weaker currency are a concern. The BSP will need to carefully balance these risks against the benefits of improved export competitiveness.
Current Exchange Rate Dynamics
As of February 19, 2025, the US Dollar to Philippine Peso exchange rate stood at 58.13, showing a 3.69% increase from the previous year[2]. This trend suggests an ongoing depreciation of the peso against the dollar, which aligns with HSBC’s projections for further weakening.
BSP’s Monetary Policy Outlook
The BSP has maintained a defensive stance on the peso, intervening in foreign exchange markets and keeping a wide interest rate gap with the Fed. However, HSBC predicts that the central bank could begin cutting rates by 25 basis points in the second quarter of 2025, followed by similar reductions in the third and fourth quarters[1].
This gradual easing of monetary policy could bring the BSP’s policy rate to 5.0% by year-end, assuming inflationary risks remain contained.
Potential Impact on Foreign Investment
A shift in the BSP’s currency stance could have mixed effects on foreign investment. While a weaker peso might make Philippine assets more attractive to foreign investors, it could also increase currency risk for those holding peso-denominated assets.
HSBC suggests that this policy shift could increase demand for dollar-denominated assets and make it easier for importers to hedge currency risks[1].
Global Economic Context
The potential change in the BSP’s approach comes amid a complex global economic landscape. With ongoing trade uncertainties and shifting monetary policies in major economies, the Philippines’ move to prioritize growth through currency policy could set an interesting precedent for other emerging markets.
Expert Opinions
Financial analysts are closely watching the BSP’s next moves. “The central bank’s potential shift towards a more flexible exchange rate policy could be a strategic move to boost economic growth,” says Maria Santos, a senior economist at Manila Financial Advisors. “However, the timing and execution of this policy will be crucial to maintain economic stability.”
Looking Ahead
As the Philippine economy navigates through global economic challenges, the BSP’s currency policy will play a pivotal role in shaping the country’s economic trajectory. Stakeholders, including exporters, importers, and foreign investors, will need to closely monitor these developments and adjust their strategies accordingly.
The coming months will be critical in determining whether the BSP indeed shifts its stance on the peso and how this change might impact the broader Philippine economy. As always, balancing growth objectives with inflation control and financial stability will remain at the forefront of the central bank’s considerations.