Philippine Inflation to Ease Further, Giving Room for Rate Cuts

By Clarissa Batino and Haslinda Amin

Dec. 22 (Bloomberg) -- Philippine inflation will probably slow for a fourth month in December, giving policy makers more scope to cut interest rates amid a global economic slump, the central bank said.

“The monetary board believes that with inflation pressures continuing to recede, there is greater latitude to ease policy rates,” central bank Governor Amando Tetangco said in a Bloomberg Television interview today. Inflation this month may ease to below 9 percent as oil prices and transport fares decline, he said in a mobile-phone text message separately.

The Philippines last week joined countries from the U.S. to Malaysia in lowering borrowing costs as slowing inflation allowed policy makers to focus on countering the global recession. The peso, has climbed 3.5 percent this month, easing the central bank’s concern a weaker currency may reignite inflation pressure.

The currency will be supported by remittances from Filipinos overseas in 2009 while lower oil prices will help sustain a surplus in external accounts, Tetangco said. Inflation this month may range between 8.6 percent and 9.5 percent, he predicted. That compares with 9.9 percent in November.

“Seasonal spikes in the demand for certain food items as well as the peso’s depreciation may have been offset by the significant reductions in domestic oil prices and transport fare adjustments,” the governor said in a text message to reporters. The peso has fallen 12.7 percent this year.

Last week’s rate cut “will help avoid credit tightness,” Tetangco told Bloomberg Television today.

To contact the reporter on this story: Clarissa Batino in Manila at cbatino@bloomberg.net.