The Philippine peso may stage a modest recovery by the end of 2026 before depreciating again and breaching the P64-per-dollar level in the fourth quarter of 2027, a trajectory that would keep it the weakest performer among Asian currencies, Singapore-based DBS Bank Ltd. said. The projection matters beyond the exchange rate itself: the currency's path bears directly on the country's external funding needs and on the Bangko Sentral ng Pilipinas' drive to keep inflation near its 3% target.

In its foreign exchange (FX) quarterly report for the fourth quarter, DBS projects the local unit strengthening back to P61.50 against the US dollar in the three months to December. The Singaporean bank, however, expects the peso to weaken anew next year, reaching P62.10 per dollar in the first quarter and P62.80 in the second quarter. By the third quarter, the currency may breach the P63-a-dollar level to average P63.40, before sliding to the P64 handle in the fourth quarter of 2027.

"PHP (Philippine peso) is likely to remain a laggard in (the fourth quarter of 2026) although its depreciation is showing signs of slowing," DBS Senior FX Strategist Philip Wee and FX & Credit Strategist Chang Wei Liang said on Wednesday.

Worst regional performer since late February

Based on the DBS report, the peso has suffered the largest depreciation against the dollar among Asian currencies since the Middle East war erupted in late February, falling 7.8% from Feb. 27 to Sept. 29. That decline was steeper than the losses of the Thai baht (7.5%), Indonesian rupiah (6.7%), Indian rupee (5.3%), Malaysian ringgit (4.6%), New Taiwan dollar (2.1%), Singapore dollar (1.1%), Japanese yen (0.9%), and Hong Kong dollar (0.3%).

The Korean won, meanwhile, emerged as the strongest Asian currency since the conflict began, gaining 6% against the dollar, followed by the Chinese yuan (2.4%) and the Vietnamese dong (0.3%).

In the third quarter alone, the peso also weakened the most, falling 2% versus the greenback. It was followed by the Indian rupee (-1.4%), Thai baht (-1.1%), Indonesian rupiah (-0.5%), and New Taiwan dollar (-0.2%).

The peso hit a record-low close of P62.86 on Sept. 14 and touched a record intraday low of P62.925 on Sept. 15. As of end-September, the currency had slumped by P3.85, or 6.15%, from its P58.79 finish on Dec. 29, 2025, according to Bankers of the Philippines data. DBS's projected P64 handle for late 2027 would take the currency beyond even those record lows.

Oil prices and a widening external gap

Mr. Wee and Mr. Chang noted that global oil prices continue to strain the local currency, outweighing gains from remittance flows and services revenue.

"Growth in the Philippines has weakened without easing the country's external funding needs, as expensive oil sustains the import bill," they said. "Remittances and services earnings provide support but cannot fully offset the trade deficit."

The Philippines' current account gap ballooned to $8.968 billion, or -7.3% of gross domestic product, in the second quarter, based on the latest Bangko Sentral ng Pilipinas (BSP) data. The country's trade-in-goods deficit widened by 12.3% to $4.94 billion in June, inflating the first-half gap by 25.85% to $30.81 billion. That widening gap is the crux of the DBS argument: dollars keep flowing in through remittances and services, but not in enough volume to cover the country's external funding needs.

Fed tightening offsets BSP rate hikes

The DBS analysts also noted that the US Federal Reserve's shift to a restrictive monetary policy stance may have tempered the currency boost that would normally be expected from the BSP's recent rate increases.

"(The) Bangko Sentral ng Pilipinas has raised rates, but weak consumption and investment constrain further tightening, just as a renewed Fed hike erodes the PHP's yield advantage," Mr. Wee and Mr. Chang said.

The BSP began its tightening cycle in April and delivered its third consecutive 25-basis-point (bp) hike in August, bringing the policy rate to an over one-year high of 5%. The Fed, after holding fire for five straight meetings, raised its benchmark rates in September for the first time in three years, by 25 bps to the 3.75%-4% range.

Markets are anticipating further tightening from both central banks this year, with BSP Governor Eli M. Remolona, Jr. seeking to bring inflation closer to the bank's 3% target, and Fed Chair Kevin Warsh acknowledging the need for rate hikes as the United States continues to grapple with sticky inflation. Since the yield advantage DBS cites hinges on both central banks' next moves, their remaining policy decisions this year are the nearest checkpoints for the currency's trajectory.

"Adequate reserves and policy support favor stability at weaker levels, but a sustained recovery requires cheaper oil, stronger capital inflows, and improved domestic confidence," the DBS analysts said.

Recovery through slower depreciation

According to Mr. Wee and Mr. Chang, the peso's recovery is more likely to come from a slower pace of depreciation than from a sharp appreciation.

"They do not need to become stronger to perform better; they merely need the pace of depreciation to slow," they said.

The central bank has said it usually keeps its foreign exchange market intervention minimal to avoid depleting its dollar reserves, especially as the greenback has strained other currencies as well. According to Mr. Remolona, the BSP intervenes not to defend a specific exchange rate but to smooth out the local currency's sharp, inflationary swings — an approach that leaves the market, rather than any defended level, to set where the peso trades.

Longer-term outlook

By 2028, DBS said the peso may climb back to P63 and strengthen further to P62 in 2029 and P61 in 2030. The Development Budget Coordination Committee (DBCC), for its part, expects the peso to hold between P60 and P62 against the greenback until 2030.

However, the DBCC is set to meet in November to review the administration's macroeconomic targets, according to its chair, the Department of Budget and Management — a review that will revisit the assumptions behind that P60-to-P62 band.