Philippine Peso May Test Record Low as Central Bank Cuts Rates

The Philippine peso has been on a downward trajectory, and with the Bangko Sentral ng Pilipinas (BSP) announcing further interest rate cuts, the currency may test its record low against the US dollar. As of January 27, 2025, the peso has depreciated by 4.4% against the greenback since early October 2024, ranking among the lowest currency sell-off rates in the region. This depreciation, coupled with the BSP's monetary policy easing, raises concerns about the peso's potential to hit its record low of 59 against the dollar.



The BSP's decision to lower interest rates by 50 basis points in January 2025 is part of a broader trend of central banks in the Asia-Pacific region easing monetary policy to boost domestic consumption. However, this move may further weaken the peso, as lower interest rates can attract more foreign investment, potentially leading to increased demand for the US dollar and further depreciation of the peso.

The depreciation of the peso can have both positive and negative effects on the Philippine economy. On the one hand, a weaker peso can make Philippine exports more competitive in the global market, potentially increasing demand and boosting export sales. This can lead to economic growth and job creation. On the other hand, a weaker peso can increase the cost of imported goods, potentially leading to higher inflation and reduced purchasing power for local consumers.

The BSP's interest rate cuts can also influence foreign investment in the Philippines, potentially boosting economic growth. Lower interest rates make it cheaper for foreign investors to borrow money, which can encourage them to invest in the country. Additionally, a stronger peso, which is a result of lower interest rates, can make Philippine exports more competitive in the global market. However, the BSP must also be aware of the potential challenges that lower interest rates can bring, such as a stronger peso that can negatively impact certain sectors of the economy.

In conclusion, the Philippine peso may test its record low against the US dollar as the BSP continues to ease monetary policy. While a weaker peso can have both positive and negative effects on the Philippine economy, the BSP must carefully monitor the currency's exchange rate and intervene when necessary to maintain a stable and competitive currency. The potential effects of a stronger peso on the competitiveness of Philippine exports and the earnings of Business Process Outsourcing (BPO) firms must also be considered, as they can have significant implications for the country's economic growth.