THE PESO is likely to remain above the P60 level against the dollar until the end of 2027 as the country faces tight domestic economic conditions and possible monetary easing once inflation pressures ease, Metropolitan Bank and Trust Co. (Metrobank) said.

The peso's sustained weakness above P60 marks a notable shift from its historical trading band, as the currency spent most of the pre-pandemic decade fluctuating between P44 and P53. The breach of the P60 threshold underscores how persistent global and domestic pressures have reanchored the currency at levels last considered unlikely just a few years ago.

In a July 30 commentary, Metrobank research officer Sophia Therese Bonifacio said persistent domestic and external headwinds may keep the local unit weak against the greenback.

"Current market sentiment favors the US dollar, cementing its status as a safe-haven asset," she said. "This is underpinned by elevated inflation and expectations of aggressive Federal Reserve rate increases."

"Domestically, dollar outflows in part due to rising import bills and sluggish foreign direct investment (FDI) inflows pressure the peso, helping push the USD/PHP (US dollar/Philippine peso) to a record level."

The country's imports rose by 17.84% to $77.53 billion in the first half of 2026 from $65.79 billion a year earlier. The Philippines has run a persistent trade deficit for years, as a consumption-driven economy reliant on imported fuel, machinery, and consumer goods consistently pulls in more goods than it exports.

Meanwhile, FDI net inflows to the Philippines dropped by 58.8% year on year to $250 million in April from $607 million, latest Bangko Sentral ng Pilipinas (BSP) data showed. This was the lowest monthly FDI inflow in nearly a decade, or since $244 million in June 2016, and the largest annual decline since 76.1% in December 2022. The drop comes even as the Philippines competes with regional peers like Vietnam and Indonesia for investment in manufacturing and infrastructure.

Fresh attacks in the Middle East last month put a fragile peace deal between the United States and Iran at risk, adding volatility to global financial markets.

That pushed the dollar higher and dragged the peso to a new record-low close of P61.847 against the greenback on July 24.

As of July, the local currency averaged P59.97 per dollar, and it has averaged above P60 since April, according to BSP data. That was nearly P2.85 weaker than its seven-month average of P57.12 last year.

Ms. Bonifacio said Metrobank expects global market volatility and domestic challenges to continue pressuring the peso for the rest of this year.

The bank is slightly more optimistic about the peso's performance next year, however, on expectations of a resolution to the Middle East conflict, which could help the Philippine economy recover.

"While the situation in the Middle East broadens, the base case assumes that the US and Iran will continue negotiations, as more parties get involved amid threats to critical oil trade chokepoints. A formal deal is anticipated by 2027, which may stabilize energy markets and bring Brent Crude back to pre-conflict levels," Ms. Bonifacio said.

The stronger peso outlook is also supported by expectations that the dollar will lose momentum as the Federal Reserve turns to easing in 2027 after delivering one 25-basis-point (bp) hike this year.

"Driven by elevated energy costs pushing headline US inflation above 2%, market players price in at least a 25-bp rate hike by the Fed for the rest of 2026," Ms. Bonifacio said. "As geopolitical tensions ease in 2027, the Fed is expected to pivot to a more dovish stance. This may become a catalyst for a weaker US dollar."

At its latest policy review in July, the Fed kept benchmark rates unchanged for a fifth straight meeting at the 3.5%-3.75% range.

The peso could also gain ground next year as a more risk-on mood and faster economic growth draw dollar inflows to the country. Historically, the Philippines has benefited from steady remittance flows from overseas Filipino workers, which typically provide a structural cushion for the currency during periods of volatility.

Still, Metrobank said any rebound is likely to be gradual and modest, especially if the BSP resumes rate cuts once growth improves and inflation pressures recede.

"As a net importer, the Philippines is hit hard by high commodity and oil prices in 2026. Elevated inflation and interest rates strain household budgets, possibly forcing consumers to deplete savings to cover essentials. A more stable geopolitical environment in 2027 may reverse this trend and ease domestic burdens," she said.

"Despite the expected 2027 recovery, economic growth may remain challenging, resulting in a gradual rather than aggressive peso appreciation. Furthermore, potential rate cuts by the Bangko Sentral ng Pilipinas in 2027 may make local financial assets comparatively less attractive to global investors."

The BSP abruptly ended its easing cycle earlier this year because of the inflation impact of the Iran war. In April, it delivered its first policy rate hike in more than two years and has since raised benchmark borrowing costs by 50 bps to 4.75%.

— Katherine K. Chan