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Philippine central bank sees inflation easing

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October 25, 2008

Philippine central bank sees inflation easing

Philippine inflation likely decelerated further in October and should be back to single-digit levels earlier than expected, making interest rates cuts more probable, Reuters quoted a senior central bank official as saying Friday.

Asked whether annual inflation in October would be below the 11.9 percent recorded in September, Deputy Governor Diwa Guinigundo told reporters: "Yes."

The government will announce the October inflation data on November 5.

Inflation peaked at 12.5 percent in August from a year ago, a 17-year high, and the central bank has previously said it would remain in the double-digits before coming down to a digit figure by March or April 2009.

But Guinigundo told a business forum on Friday: "Based on our baseline forecast, we expect inflation to continue coming down to lower double-digit on to 2009."

"Between February and March of 2009, we expect it would be back to single digit rate."

Higher domestic food and fuel prices, reflecting rises in world commodity and oil costs, pushed overall consumer prices beyond the central bank's monthly forecasts earlier this year.

"Commodity prices, particularly food and fuel have started to decrease. In short, we are seeing today the possibility of an earlier return to single digit (inflation)," Guinigundo said.

Rice prices have been on a steady downtrend since mid-August, mainly due to early harvests and a stepped-up rice distribution programme in the Philippines, the world's biggest rice buyer this year.

Rising inflation prompted the central bank to raise its policy rates by a total 100 basis points from June to August.

But easing prices in September allowed monetary authorities to keep rates on hold at its meeting on Oct. 6, two days before unprecedented coordinated rate cuts worldwide to dampen panic over a possible global recession due to the financial crisis.

Guinigundo told reporters late on Thursday there seemed to be no additional second round effects from inflation with local oil prices steadily falling and with ongoing talks of a cut in transport fares.

"Right now, we are keeping the rates steady. We are not on that stage where we can say that we are already on an easing mode but there are encouraging signs," he said.

The economy should continue to be supported by remittances from nearly 9 million Filipinos working abroad in 2009, with these inflows rising 10 percent from the 2008 level despite the global credit crisis, Guinigundo said during the Friday forum.

"I think a 10 percent growth in remittances will continue to be realistic in 2009 versus 2008."

The central bank has previously said 2008 remittances are likely to be about 15 percent higher than the $14.45 billion in 2007. In the first seven months of the year, remittances reached $9.6 billion, up 18.2 percent from a year earlier.

Remittances, equivalent to about a tenth of gross domestic product, support private consumption, the peso <PHP=> and the country's balance of payments.

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