After performing among the worst of Asian currencies last week, the Philippine peso is still expected by Japanese financial giant MUFG Bank Ltd. to gradually appreciate and return to the ₱56:$1 level next year.

“All Asian currencies depreciated against the United States (US) dollar [last] week, with the New Taiwan dollar and Philippine peso being the underperformer in the region,” MUFG Global Markets Research said in a Aug. 1 report.

Amid a strong US dollar performance, the peso depreciated by 1.8 percent last week, MUFG noted.

In its separate foreign exchange (forex) outlook for August 2025, MUFG cited that the peso’s end-July close of ₱58.307 was much weaker than end-June’s ₱56.31.

“We mark to market our US dollar/Philippine peso forecasts and now see a weaker profile for the Philippine peso. Nonetheless, we continue to expect the Philippine peso to strengthen against the US dollar over time, both because the positive domestic drivers we have highlighted have not changed, and also because we do not assume tail risks such as sharp spikes in oil prices from Russia secondary sanctions will materialize,” MUFG said.

The Japanese bank now expects the peso to reach the ₱57.5:$1 level in the third quarter, before strengthening to ₱57 in the fourth quarter, and appreciating further to ₱56.5 throughout the first half of 2026.

“Overall, the key changes at the margin for our Philippine peso forecasts are mainly global in nature. For one, our global team’s dollar profile is for less US dollar weakness relative to the last update,” MUFG explained.

“Second, the US tariffs on the Philippines at 19 percent are higher than we implicitly assumed, even as we have highlighted that the net impact to the Philippines’ economy is unlikely to be that large given most other countries are getting relatively similar rates,” it added.

Notwithstanding global developments, MUFG maintains a positive outlook for the peso, expecting it to strengthen modestly against the greenback due to stable domestic fundamentals.

For one, the bank forecasts headline inflation to average just 1.8 percent in 2025, supported by lower rice prices and easing risks to transport and energy costs.

Also, MUFG projected foreign direct investments (FDIs) to rise, and infrastructure activity to remain robust, with recent political developments seen as unlikely to derail the country’s overall policy and growth trajectory.

It noted that the Bangko Sentral ng Pilipinas (BSP) “maintains a dovish bias even as it keeps an eye out for risks.”

“We forecast another 50 basis points (bps) of rate cuts by the BSP in 2025, with inflation expected to remain well within the central bank’s inflation corridor this year, absent oil price shocks,” MUFG said.

This means the bank expects the key interest rate to fall to 4.75 percent by year-end from 5.25 percent at present. For 2025, the BSP still has three monetary policy stance decisions to be made later this month, in October, and in December.