Peso seen at 55.3: $1 by year-end

September 24, 2024 | 12:00am

MANILA, Philippines — Ty-led Metropolitan Bank & Trust Co. (Metrobank) sees the peso appreciating over the next two years, after slumping to a near two-year low in the first half, amid the easing cycle of the US Federal Reserve.

Metrobank Research said in a report that the peso may strengthen to 55.3 to $1 in end-2024, an improvement from the 57.2 to $1 forecast the bank gave earlier in August.

The local currency could continue to appreciate against the dollar next year. Metrobank Research sees the peso hitting 54.5 to $1 by end-2025, stronger than the previous forecast of 56.3 to $1.

“Given the weak dollar environment which recently saw the dollar-peso spot rate dropping to the 55-level, Metrobank Research revises its year-end forecast to 55.3 for 2024 and 54.5 for 2025,” the bank said.

“These forecasts also take into consideration the expected net dollar inflows from remittances in the fourth quarter, which would be partially offset by a projected wider trade deficit,” it said.

The peso appreciated by 38.5 centavos to 55.37 to $1 by end-2023 from the 55.755 to $1 close by end-2022.

It hit an all-time low of 59 to $1 in October 2022, but bounced back in 2023 due to the series of aggressive rate hikes and the active intervention by the Bangko Sentral ng Pilipinas (BSP).

However, the peso weakened to a 20-month low of 58.86 to $1 on June 26 amid hawkish remarks from US Fed officials.

But the peso has since rebounded to the 55-level as the Federal Open Market Committee (FOMC) started its easing cycle last week by delivering a 50-basis-point cut in interest rates.

Metrobank Research said it has also revised its Fed Funds Rate (FFR) forecasts over the next two years, expecting a total of 100 basis points of cuts for 2024 and another 100 basis points for 2025.

“The recent 50-basis-point cut will be followed by 25-basis-point cuts at each of the remaining FOMC meetings (November and December). This should bring the target FFR range to 4.25 to 4.50 percent by year-end and 3.25 to 3.50 percent by end-2025,” it said.

The Fed’s policy decision last week also opened the door for a 25-basis-point cut in October and December from the BSP. Metrobank said it maintains its view that the BSP will lower interest rates by a total of 75 bps this year..

If realized, this would bring the BSP’s key rate down to 5.75 percent by year-end from the current 6.25 percent. The interest rate differential between the BSP and the US Fed would settle at 125 basis points.

For 2025, Metrobank Research sees a total of 100 basis points by the BSP, bringing the key rate down to 4.75 percent.