Japanese financial giant MUFG Bank Ltd. expects the Bangko Sentral ng Pilipinas (BSP) to lower its key interest rate to 4.25 percent by the middle of next year, as monetary authorities seek to address intensifying economic growth headwinds alongside expectations of a weaker peso.

In its latest foreign exchange (forex) outlook report published on Nov. 3, MUFG Global Markets Research forecast that the Philippine peso will remain at the ₱58 level over the next four quarters.

The local currency is projected to end 2025 at ₱58.7 against the United States (US) dollar, before appreciating to ₱58 in the first half of 2026.

By the third quarter of next year, the peso is seen depreciating to ₱58.5 versus the greenback.

The peso weakened to ₱58.724:$1 at end-October, after falling to its record low of ₱59.13 on Oct. 25.

“For the Philippine peso, one key forecast driver change relative to last month has been a more dovish tilt by the central bank due to concerns around corruption issues on flood control projects and, with that, the negative spillover to government and public infrastructure spending,” MUFG said.

The Japanese bank noted that the BSP’s more accommodative tone “to some extent fed through to the peso.”

“We are, as such, now forecasting the BSP to cut rates by another 50 basis points (bps), bringing the key policy rate to 4.25 percent by the second quarter of 2026,” it added.

MUFG said the peso has been weaker than anticipated despite the BSP’s 25-bp interest rate cut in October, adding that the central bank has maintained that exchange rate movements are market-driven and that it does not seek to control short-term volatility or target any specific level.

“In short, there is no specific line in the sand,” the bank said.

For MUFG, several domestic factors continue to support the Philippine economy from a fundamental standpoint, including stable rice prices despite import bans, manageable inflation, and the positive effects of lower rates on consumption and investment.

MUFG also believes that a strong infrastructure pipeline—particularly in renewable energy (RE)—along with potential foreign direct investment (FDI) inflows and the peso’s likely inclusion in the JPMorgan Government Bond Index-Emerging Markets (JPM GBI-EM) Index, should further bolster economic and currency stability next year.