With dust from the United States (US)-Iran war still swirling in the air, global inflation remains vulnerable to a sudden resurgence in oil prices, according to global investment banking giant Goldman Sachs, keeping the case for a preemptive hike in borrowing costs alive.

Goldman Sachs has joined the hawkish camp on the Bangko Sentral ng Pilipinas’ (BSP) likely policy move on Thursday, Aug. 27, as it looks at the upside risks to inflation.

“Energy prices are still elevated as the conflict in the Middle East remains unresolved. This introduces upside risks to the Philippines’ inflation outlook,” Goldman Sachs Economics Research said in an Aug. 21 commentary obtained by Manila Bulletin.

“Against this backdrop, we think the BSP will hike the policy rate to dampen inflationary pressures,” Goldman Sachs said. An additional 25-basis-point (bp) interest rate hike at the Monetary Board’s (MB) fourth policy meeting would raise the 4.75-percent benchmark rate to five percent.

Goldman Sachs stressed that headline inflation is still hovering above the three-percent inflation target and four-percent target ceiling. The headline print clocked in at a three-month low of 6.2 percent in July.

“Meanwhile, still elevated core inflation points to broader underlying price pressures beyond the initial food and energy price shock,” Goldman Sachs said. Core inflation stood at 4.2 percent in July, lower than 4.4 percent in June.

Meanwhile, British banking giant Barclays believes the anemic gross domestic product (GDP) growth and cooling inflation could dissuade monetary authorities from further increasing borrowing costs.

“While a close call, we believe the further drop in second-quarter GDP growth amid continued stabilization in inflation will likely tilt the Monetary Board (MB) toward leaving its policy rate unchanged,” Barclays said in an Aug. 21 report obtained by Manila Bulletin.

Local economic growth slowed to a disappointing post-pandemic low of 2.3 percent in the second quarter from 2.8 percent in the first. The Marcos Jr. administration now expects growth to move between 3.5 percent and 4.5 percent, massively lower than earlier assumptions.

Despite its stance, Barclays said the risk is that the BSP will deliver another quarter-point hike.

Meanwhile, Singapore-based Oversea-Chinese Banking Corp. Ltd. (OCBC) priced in another 25-bp hike to five percent, even as it expects slower economic activity for the entire 2026.

In an Aug. 24 report, OCBC Group Research said lowered its 2026 full-year growth forecast for the Philippines to 3.2 percent from 3.8 percent. If realized, this would fall short of the government’s already-reduced target range.

Despite the lingering economic headwinds and domestic governance concerns, BSP Deputy Governor Zeno Ronald Abenoja assured that the country’s fundamentals remain healthy.

“Over the medium term, growth is expected to strengthen on the back of these fundamentals, and as uncertainty gradually recedes and investment conditions improve,” Abenoja said during the Philippine Economic Briefing (PEB) in Davao City last Monday, Aug. 24.

During the second quarter, local output growth was hurt by declines in investments and the continued slump in public construction activity.

However, Abenoja warned that the archipelago is likely to suffer from a strong El Niño, and “the peak will be in the fourth quarter of this year and first quarter of next year.” This risk threatens to stoke food inflation, warranting the early implementation of government mitigating measures.

Tightening monetary policy will also help tame inflation. OCBC expects the key policy rate to peak at 5.5 percent by the end of 2026, after which the BSP is expected to step on the brakes and ease back to the five-percent level.