United Overseas Bank (UOB) is calling for the Bangko Sentral ng Pilipinas (BSP) to raise its key interest rate to five percent at its upcoming policy meeting on Aug. 27, forecasting a final quarter-point increase to counter sticky inflation and support weakening peso.

The Singapore-based lender expects the central bank to deliver a 25-basis-point rate increase, bringing the benchmark rate to five percent before holding borrowing costs steady through the second quarter of 2027.

The forecast comes as policymakers balance persistent price pressures against a sharp deceleration in economic growth.

According to BSP Governor Eli M. Remolona Jr., the pressure on the BSP to raise its benchmark interest rate this August has eased after economic growth slowed to a post-pandemic low in the second quarter of the year.

Remolona said the monetary authority remains open to further tightening if necessary to bring inflation back to its three percent target, which now remains above the four-percent target ceiling.

Headline inflation remained above the four-percent target ceiling in July despite easing to a three-month low of 6.2 percent. Meanwhile, core inflation—which strips out volatile food and energy items—has also shown signs of moderation.

Meanwhile, the BSP said the core print may have already plateaued, citing the slowdown seen in July to 4.2 percent from the peak of 4.4 percent in June. Policymakers are more vigilant over core inflation rather than the headline figure, as core inflation reflects factors within the BSP’s control.

UOB’s forecast also comes against the backdrop of GDP growth slowing to a post-pandemic low in the second quarter of 2026 at 2.3 percent from 2.8 percent in the previous quarter. Further raising borrowing costs could induce stress on economic expansion, as this typically curbs domestic demand.

However, withdrawing briefly from a hawkish mode on interest rates could further strain the volatile peso, which has been bearing the brunt of war-driven volatility.

Last Tuesday, Aug. 11, the local currency sustained a massive loss against the United States (US) dollar to close back below the ₱61:$1 mark, particularly at ₱61.26:$1 from ₱60.705:$1 on the first trading day of the week.

With the massive slippage of the peso on Tuesday, Aug. 11, the local currency is expected to further slip against the greenback in the current quarter to ₱62:$1 and only recover slightly to ₱61.6:$1 in the fourth quarter and steadily through the second quarter of 2027 at ₱61:$1.