The Philippine Peso appears likely to continue its decline towards a record low as investors anticipate the country's central bank will cut interest rates before the Federal Reserve does.

The peso has been near its 2022 low of 59 per dollar for most of June and has depreciated nearly 6% this year.

Bearish sentiment has grown after Bangko Sentral ng Pilipinas (BSP) indicated last month that rate cuts might start as soon as August, with some strategists predicting the currency could weaken to 60 by the year's end, Bloomberg reports.

The Philippine central bank's stance contrasts with that of its peers in Asia, who remain hawkish despite the decline in regional currencies this year. Further weakening of the Peso could impact the economy, with inflation posing a significant risk due to the country's importation of goods such as rice and nearly all its oil needs.

The level of 60 “is a risk that cannot be ruled out given the BSP’s pushback against hikes, recalcitrant Fed restraint, twin deficits and China risks,” stated Vishnu Varathan, Singapore-based chief Asia ex-Japan economist at Mizuho Bank Ltd. 

The peso closed Friday at 58.65 per Dollar.

Furthermore, much will hinge on the BSP's level of intervention, as it previously defended the 59 level for months in late 2022, using billions of its foreign-exchange reserves. 

Authorities also sold dollars last month to curtail the peso's fall. However, central bank governor Eli Remolona noted that the bank does not intervene daily and will only do so when the market is “under stress.”

The depreciation of the Peso is also increasing inflationary pressures as companies transfer higher costs of raw materials to consumers. While the BSP considers interest rate cuts, Remolona has suggested alternative monetary policies such as lowering banks' reserve ratios, a move that could potentially exert additional downward pressure on the currency if seen as dovish.

Additionally, monetary policy divergence between the Federal Reserve and the Philippine central bank could drive the Peso “to as low as 60 by end of this year,” said Lloyd Chan, Singapore based FX strategist at MUFG Bank Ltd.