HSBC now expects the Bangko Sentral ng Pilipinas (BSP) to slightly reduce its policy rate to 6.25 percent later this year.

Previously, HSBC estimated a 5.75 percent rate by year-end from the existing 6.5 percent.

In a statement on Thursday, HSBC economist Aris Dacanay said the new forecast was influenced by the weaker peso against the US dollar, strengthening chances the Monetary Board might keep its rate elevated to match the move of the US Federal Reserve.

“The dollar has strengthened quite considerably with sticky inflation in the US pushing the idea that, perhaps, the Federal Reserve may keep rates tight for longer,” Dacanay said.

Maintaining a narrow gap between the rates of the two countries ensures healthy levels of foreign exchange and investments.

“The story has been one of dollar strength rather than peso weakness. Escalating tensions in the Middle East led to safe-haven flows into the US dollar at the expense of most other currencies,” BSP Governor Eli Remolona Jr. added.

The peso depreciated on Friday as it closed at P57.78 per dollar from P57.55 on Thursday based on data from the Bankers Association of the Philippines.

The peso surpassed the P57.00 level last week, marking its 17-month low.

The result came after global media reported that Iran found missiles in the province of Isfahan after it attacked Israel last 13 April.

Iran enters conflict

The attacks followed Israel’s declaration of war last October against the terror group Hamas, a group backed by Iran.

The armed conflict is expected to push up global oil prices, affecting Philippine overall inflation.

“Market players already expect headline inflation to breach the BSP’s 2 to 4 percent target band in the few months ahead due to base effects being unflattering,” Dacanay added.