Philippine Inflation Eases, Giving Policy Flexibility

By [bn:PRSN=1] Francisco Alcuaz Jr []. and Karl Lester M. Yap

May 5 (Bloomberg) -- Philippine inflation slowed to a 16- month low in April as fuel and utility prices fell for a fifth month, giving the central bank more room to reduce borrowing costs and stoke economic growth.

Consumer prices rose 4.8 percent from a year earlier, the National Statistics Office said in Manila today. That compares with the median forecast of 4.6 percent in a Bloomberg News survey of nine economists.

``We are encouraged by the increased flexibility afforded to monetary policy by the continued improvement in the inflation outlook,'' central bank Governor Amando Tetangco said in a mobile-phone text message after the inflation data today. Policy makers next meet on May 28 to decide on borrowing costs.

Bangko Sentral ng Pilipinas has cut its benchmark interest rate to a 17-year low of 4.5 percent to spur domestic spending as exports slump and remittances from overseas Filipinos falter amid the global recession. The government forecasts 2009 economic growth may slow to as little as 3.1 percent, the weakest pace in eight years.

``The fast drop in inflation expectations provides breathing space'' for the central bank to lower its key interest rate or reduce banks' reserve requirements, said Jonathan Ravelas, a market strategist at Banco de Oro Unibank Inc. in Manila. ``Because of low inflation, there's no risk.''

The peso rose a fourth day, climbing 0.5 percent to 47.9 per dollar as of 10:28 a.m. in Manila, according to Tullett Prebon Plc.

Orderly Adjustment

``We continue to keep a close eye on the medium-term implications of previous monetary policy easing to ensure orderly adjustment of liquidity conditions,'' Tetangco said.

Inflation may slow to 1 percent in the third quarter, central bank Deputy Governor Diwa Guinigundo said last week.

Lower borrowing costs have spurred demand for loans, helping the nation's biggest lender by market value return to profit growth. Bank of the Philippine Islands said last week profit in the three months ended March jumped 86 percent from a year earlier, the first increase in five quarters.

Fuel, electricity and water prices fell 2.4 percent from a year earlier last month compared with a 2.8 percent decline in March. Food, beverage and tobacco costs climbed 8 percent, easing from an 11.4 percent gain in March.

To contact the reporter on this story: Francisco Alcuaz Jr. in Manila at falcuaz@bloomberg.net