Singapore-based United Overseas Bank Ltd. (UOB) expects the Bangko Sentral ng Pilipinas (BSP) to keep key interest rates unchanged this year, despite rising risks to growth and inflation from the ongoing war in the Middle East.

“Amid persistent uncertainty over the Middle East conflict, we expect no further changes to the RRP [reverse repurchase] rate for now,” UOB economist Lee Sue Ann said in a report on Wednesday, April 1.

The BSP kept the RRP, or the policy rate, at 4.25 percent during the Monetary Board’s (MB) rare off-cycle meeting last March 26, even as Governor Eli M. Remolona Jr. said that a rate hike would likely be triggered if inflation expectations become unanchored. The BSP raised its 2026 inflation forecast to 5.1 percent, above the central bank’s two- to four-percent target range of annual price increases deemed manageable and conducive to economic growth.

But for UOB, “weak domestic demand and elevated living costs [point] to a prolonged policy pause and greater reliance on fiscal support” instead of higher interest rates. The MB will next meet to discuss the monetary policy stance on April 23.

UOB pointed out that the BSP itself has signaled after the surprise MB policy meeting that raising rates at this time may slow economic recovery, since current inflation pressures are mainly driven by supply factors. The BSP expects gross domestic product (GDP) growth this year at 4.4 percent, matching the post-pandemic-low expansion recorded last year.

The Singaporean bank forecasts the Philippine economy to grow by five percent this year, as first-quarter growth could improve to four percent, based on its latest estimates. The government targets five- to six-percent GDP growth for 2026.

However, UOB believes that the Philippines and other net energy importers in Southeast Asia, like Singapore and Thailand, would be among the worst hit by the Middle East conflict.

Specifically, the bank sees a “high” vulnerability for the Philippines, which sources 95 percent of its crude oil from the Middle East.

UOB flagged “upside inflation risks via fuel, electricity tariffs, and a weaker Philippine peso.” The domestic currency has dropped to record lows against the United States (US) dollar in recent days.