Peso rally to fade on Philippine balance of payments deficit

The Philippine peso’s rally may run out of steam after the central bank revised its projection for the nation’s balance of payments to a deficit from a surplus.

The currency may fall toward a record low of 59 per dollar next quarter from around 57.4 now, according to forecasters at Australia & New Zealand Banking Group Ltd. and Malayan Banking Bhd. Meanwhile, analysts at Wells Fargo & Co. and Standard Chartered Plc predict the peso will depreciate to just below 59 by June after gaining this month.

Bangko Sentral ng Pilipinas revised its balance of payments forecast for 2025 last week and predicted a bigger current-account shortfall, citing worries over international trade policy. The gap will mean that there’s less demand for the peso at a time when US tariffs are already weighing on global markets.

“The negative sentiment from tariff threats is likely to still guide the pair higher throughout the rest of first half. This would not dissipate in the second half,” said Saktiandi Supaat, FX research head at Maybank. “The country’s persistent twin deficit condition would also add to the currency’s weakness.”

The Philippine peso has gained 1.1% this month to beat all but one of its Asian peers. It climbed to a five-month high of 57.09 in March amid broad weakness in the dollar.

While the rally will likely lose steam, the Philippines’ reliance on consumption and service exports may temper the impact of tariffs and provide the peso some relief, according to Michael Ricafort, chief economist at Rizal Commercial Banking Corp. in Manila. A possible BSP rate cut in April may have also been priced in by the market, he added.

Traders now await a report on March inflation due Friday to gauge the outlook for monetary policy and gain more insight into the peso’s near-term direction. Economists surveyed by Bloomberg predict that consumer-price growth slowed to 2% year-on-year from 2.1% in February, backing the case for an interest-rate cut.

Investors should also be careful about underestimating the political risks in the Philippines, according to Barclays, which sees the peso falling to 59 per dollar by the fourth quarter. Concerns have been mounting with President Ferdinand Marcos Jr. locked in a feud with the family of his predecessor Rodrigo Duterte.

The challenges are “likely to see investors demand a higher political risk premium in Philippine assets over the medium term,” FX strategists Mitul Kotecha and Audrey Ong wrote in a note this month. — Bloomberg