ING warns Philippine peso faces further weakness from VP Duterte impeachment trial even as inflation cools. BSP expected to hike 50bp. Peso seen at 61.70 in month.
The Philippine peso is under fresh pressure from political uncertainty tied to Vice President Sara Duterte's impeachment trial, ING Economics said. The currency closed at P61.587 to the dollar last Friday, up 3.3 centavos from the previous day. It had briefly touched P61.71 earlier in the week, near its record low of P61.75, after a renewal of hostilities between Iran and the United States.
The impeachment proceedings create a new source of risk for investors at a time when the central bank is still fighting above-target inflation. ING said the political developments could dampen investor confidence and delay economic reforms. That, in turn, would keep downward pressure on the peso.
The Bangko Sentral ng Pilipinas has raised its benchmark rate by 50 basis points so far this year, to 4.75%. ING expects another 50 basis points of tightening through 2026. Policymakers are unlikely to ease their stance even as headline inflation slows, the research unit said.
June inflation came in at 6.4%, down from 6.8% in May but still well above the central bank's 2% to 4% target. Core inflation, which strips out volatile food and energy prices, rose to 4.4% from 4.1% in May. It also exceeded the year-ago print of 1.4%. Recently approved wage increases add to the price pressure.
"We don't believe the central bank has enough evidence yet to declare victory on inflation," ING said. The risks should keep policymakers focused on anchoring inflation expectations, it added.
The ING forecast sees the peso trading at P61.70 against the dollar over the next month, strengthening to P61.50 after three months and to P61 in six to 12 months. A separate call from Fitch Group unit BMI projects the peso could fall to a fresh record low of P63:$1 this year. BMI said a renewed escalation in the U.S.-Iran conflict, a firm dollar and seasonal import demand will weigh on the currency in the near term.
The peso lost 3.3 centavos last week to settle at P61.587. The session low was P61.71 on Tuesday.
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