With a protectionist Trump 2.0 administration expected to increase inflation and interest rates in the US, forecasts indicate that the Philippine peso could weaken to P62:$1 by 2025, according to Capital Economics.
The London-based think tank released new foreign exchange (FX) forecasts on November 15, reflecting Donald J. Trump’s recent victory in the US presidential election. The projections show Asian currencies depreciating by between three percent and 10 percent against the US dollar from now until the end of 2025.
Capital Economics' senior Asia economist, Gareth Leather, and assistant economist, Harry Chambers, expect that the Chinese renminbi will experience the most decline against the dollar by the end of next year, as President-elect Trump plans to impose substantial tariffs on imports from China.
For the Philippine peso, Capital Economics’ latest projections indicate it could weaken from the current level of P58.8:$1 to P59:$1 by the end of this year and further drop to P62:$1 by the end of next year.
This marks a reversal from their previous estimate, which anticipated that the peso would strengthen against the dollar to P56:$1 next year and further appreciate to P54:$1 by 2025.
Other Asian currencies, including those of South Korea, Indonesia, Thailand, Malaysia, Taiwan, Singapore, and India, are also expected to depreciate next year.
Capital Economics explained, “We believe US Treasury yields will remain elevated over the coming year (contrary to our prior expectation of a decrease), which will exert upward pressure on the US dollar.”
“Weaker currencies can increase the cost of imported goods and contribute to inflationary pressures. However, given the overall weakness of inflation across the region, this is unlikely to be a significant concern for policymakers. In fact, many countries may even welcome weaker currencies as they can help offset the impact of higher tariffs,” the think tank stated.
In discussions with reporters on November 15, Bank of the Philippine Islands (BPI) President and CEO Jose Teodoro K. Limcaoco acknowledged that the Ayala-led lender is preparing for a weaker peso in the future.
While he did not provide a specific forecast for the peso’s potential decline, Limcaoco noted that Trump’s policies, based on his campaign, emphasize imposing tariffs, particularly on Chinese imports, to bolster the U.S. manufacturing sector and reduce illegal immigration.
“Trump's campaign message revolved around imposing tariffs on imported goods, especially from China. He aims to bring manufacturing back to the US and eliminate illegal immigration,” he remarked.
Limcaoco further stated that while these measures could lead to a stronger dollar and a more robust US economy, they also pose risks such as inflation and labor shortages in labor-intensive industries.
This aligns with Capital Economics’ expectation that mass deportation of illegal migrants and higher tariffs on imports could drive up U.S. inflation, increase interest rates, and strengthen the dollar.
However, Limcaoco suggested that a stronger greenback might not be detrimental for the Philippines, emphasizing that the US has a strong relationship with the country. As a result, the Philippines could benefit from the ongoing tensions between the US and China.
“Clearly, President Trump’s intention is to push back against China, which could be advantageous for our own disputes with them,” he noted.