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Philippine central bank: Slower inflation key to rate decision

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October 6, 2008

Philippine central bank: Slower inflation key to rate decision
Slowing food and oil prices will be a key factor when the Philippine central bank sets its interest rates on Monday, Reuters quoted a senior central bank official as saying.

The remarks boosted expectations authorities would loosen policy to support growth in light of the global financial crisis.

Rice prices have been on a steady downtrend since mid-August, mainly due to early harvests and a stepped-up rice distribution programme while domestic oil prices continued to fall, Diwa Guinigundo, central bank deputy governor told reporters.

The central bank is expected to announce the results of its policy meeting on rates around 0800 GMT on Monday.

"International rice prices have been easing also, this contributed to a drop in rice prices. I'm emphasising this because more than 9 percent of our consumer basket is rice, and you've seen how this has been coming down," Guinigundo said.

"If monetary and price conditions are such that the outlook is benign, inflation expectations are benign, price pressures are easing especially those coming from rice and food and fuel, then there is ground for a review of the current monetary policy." "Monetary targeting is what we're seeing in the future," Guinigundo said.

"Now if it so happens there are grounds to review monetary policy and it happened that it will also promote economic growth, then it's good."

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Inflation in August hit a 17-year high of 12.5 percent and the central bank has forecast that September inflation, to be announced on Tuesday, could come within 11.8 percent to 12.7 percent, depending on how severely recent typhoons damaged crops.

The Philippine central bank has raised interest rates by 100 basis points since June to combat inflation and a Reuters poll last week showed a majority of analysts expect monetary authorities to end their tightening cycle on Monday.

Separately, central bank governor Amando Tetangco said economic growth of about 4.7 percent this year, lower than the government's current goal of at least 5.5 percent, would be respectable given the slowing global economy.

"Of course we would want to see a higher growth rate but because of what is happening abroad, everybody's being affected," Tetangco told reporters. "So if we are able to post a growth of about 4.7 percent, I think that would be a good showing already given that there are many challenges facing us."

The Philippines, which recorded a 31-year high of 7.2 percent growth in gross domestic product last year, now estimates growth this year at 4.4 percent to 4.9 percent, below its 2008 target, due to the impact of the global financial crisis on its exports.

Economists have previously said the Southeast Asian nation needs to grow an average of 7 percent a year to make a significant dent in the poverty that engulfs about a third of its 90 million population.

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