Singapore-based United Overseas Bank (UOB) has downgraded its 2025 economic growth forecast for the Philippines amid global trade uncertainties, which, in turn, bolstered its expectations of further interest rate cuts.

In its new quarterly global outlook report for the third quarter of 2025, published this month, UOB slashed its Philippine gross domestic product (GDP) growth projection to five percent, from six percent previously.

UOB’s revised forecast falls below last year’s below-expectations growth rate of 5.7 percent, as well as the government’s more ambitious six- to eight-percent target for this year.

Following the “downbeat” 5.4-percent year-on-year real GDP expansion in the first quarter of 2025—“even before tariffs hit and ongoing global trade threats,” as UOB noted—it expects second-quarter growth to slow to 5.2 percent, the third quarter to 4.9 percent, and the fourth quarter to 4.6 percent.

“The outlook going into the second half of 2025 hinges largely on external developments such as the outcome of trade deals by major economies including the Philippines with the United States (US) before the 90-day suspension [on US tariffs] ends on July 9, and the Trump administration’s decision on sector-specific tariffs under the Section 232, which involves semiconductor and pharmaceutical products, among others,” UOB said.

“Thus, domestic demand will come to the rescue, with growth levers including a larger national budget expenditure, easing inflation pressures, broader transmission of monetary policy easing, and sustained overseas cash remittance inflows,” it added.

For 2026, UOB forecasts GDP growth at a faster—but still below-goal—5.5 percent.

Given its less optimistic near-term economic outlook for the Philippines, UOB sees “plenty of room to cut interest rates” for the Bangko Sentral ng Pilipinas (BSP).

In its latest weekly outlook report dated June 13, UOB said its economist Jasrine Loke expects a 25-basis-point (bp) cut in the overnight reverse repurchase (RRP) rate—to 5.25 percent from the current 5.5 percent—at the BSP Monetary Board’s (MB) policy meeting on Thursday, June 19.

The anticipated continuation of monetary easing will be “backed by May’s low inflation outturn while higher positive real interest rates, which are at [an] almost 10-year high, also give the central bank plenty of room to ease,” UOB said. Headline inflation fell to a 5.5-year low of 1.3 percent in May.

In a May 30 report, UOB economist Lee Sue Ann said that “increasing downside risks to domestic growth prospects and a more benign inflation outlook strengthen the case for the BSP to shift toward a more accommodative monetary policy stance in the near term, amid a relatively strong peso.”

“We maintain our BSP outlook with three 25-bp cuts this year, one each in June, the third quarter, and the fourth quarter. This will bring the RRP rate to 4.75 percent by end-2025,” Lee said.

After the projected 2025 rate cuts, the BSP is expected to pause monetary loosening at least through the first half of 2026.

In its third-quarter outlook report, UOB also lowered its full-year 2025 Philippine inflation forecast to two percent—the lower end of the targeted range of manageable annual price increases deemed conducive to economic growth.

“Ongoing mitigating factors such as continued non-monetary intervention, softer global energy prices, and a stronger currency, suggest a more moderate inflation outlook than previously anticipated,” UOB said.

While end-May inflation averaged 1.9 percent, UOB said it expects consumer price index (CPI) growth to “rebound back to above two percent in the fourth quarter of 2025.”

But it cautioned that “looming tariff uncertainty will also weigh on global demand and pose downside risks to the nation’s near-term inflation prospect.”

Nonetheless, UOB said that “a more benign inflation outlook gives the BSP more flexibility to support the slowing economy going into the second half of 2025 and to fend off a deeper slowdown in growth from tariff uncertainty.”

UOB noted that the Philippine peso strengthened against the US dollar by 2.8 percent quarter-on-quarter as of early June, “mainly as a result of US tariffs, fiscal outlook, and US credit rating downgrade eroding investors’ confidence on the greenback and dollar-denominated assets.”

The peso’s early June trading levels were also 3.6-percent stronger year-to-date.

“Other factors driving the gains in the Philippine peso included lower global oil prices that would help to narrow the country’s balance of payments (BOP) deficits and to contain inflation; signs of policy continuity as President Ferdinand Marcos Jr. retained his economic managers while replacing his top diplomat during a Cabinet reshuffle on May 22 after an underwhelming performance by his allies in the May 12 midterm elections; and the BSP’s plans to reduce its holdings of US Treasuries and diversify its foreign reserves into other currencies and asset classes,” UOB said, noting that US dollar-denominated assets currently account for four-fifths of reserves.

“Going forward, sentiment on the Philippine markets is also expected to improve as investors look past the midterm election results and anticipate policy continuity and financial stability. In the near term, the Philippine peso may consolidate recent gains as the expiration of the 90-day tariff pause looms in July,” it added.

As such, UOB expects the peso to depreciate to ₱56.5:$1 in the third quarter of 2025, before gradually appreciating to ₱55.8 in the fourth quarter, ₱55.3 in the first quarter of 2026, and ₱55 in the second quarter of next year.