HSBC expects the Philippine peso to strengthen to the ₱55 level by year-end, a trend that could be supported by a widely expected potential cut by the Bangko Sentral ng Pilipinas (BSP) to counter the decline in the services sector due to a “stronger” peso.

In an HSBC investment outlook report released on June 19, the bank said the growth in the business process outsourcing (BPO) sector has slowed down due to the pressure on the country’s external competitiveness.

“With external competitiveness under pressure, especially from an appreciating peso, the BPO sector showed signs of moderation, growing just 1.7 percent—well below its historical average,” HSBC said.

“As a result, the BSP can potentially cut rates ahead of the US Federal Reserve to support domestic conditions while maintaining currency stability,” said James Cheo, chief investment officer of HSBC global private banking and premier wealth, Southeast Asia and India.

Cheo said the peso is “expected to trade around >>>font-family: Gilroy; display: inline !important;>₱55 to the US dollar by year-end, supported by monetary easing and a stable macroeconomic backdrop.”

Late last year, the BSP started cutting interest rates to support the slowing economy and tame inflation. To date, a total of 100 basis points (bps) has been reduced from the key borrowing costs, bringing the policy rate down to 5.5 percent from 6.5 before the easing.

Last week, HSBC ASEAN economist Aris Dacanay cited favorable inflation as the major factor to the central bank’s expected decision to further reduce key borrowing costs by a quarter point.

“Due to low inflation over the past two months and slow growth in the first quarter of 2025, we now expect the BSP to cut its policy rate by 25 bps to 5.25 percent [this] week,” Dacanay said. He earlier expected the BSP to hold rates on Thursday, June 19, taking into account the US Fed’s cautious stance on rate cuts.

May’s 1.3-percent inflation was the slowest in five-and-a-half years, or since November 2019, when it stood at 1.2 percent. It fell way below the target band of the government, at two to four percent.

It was also at the midpoint of the BSP’s 0.9- to 1.7-percent projection.

HSBC noted that Philippine gross domestic product (GDP) growth remains “healthy, driven by domestic consumption.” It accelerated by 5.4 percent in the first quarter, below expectations.

But the bank expects the Philippine economy to grow by 5.6 percent this year, placing it among the fastest-growing economies in Asia.