MANILA, Philippines--The Philippine economy likely grew at a slower 4 percent year-on-year in second quarter due to the dampening effect of high inflation and interest rates, First Metro Investment Corp. and the University of Asia and the Pacific said in a new research report.

The growth forecast was much lower than the government's projected expansion of 5.3-5.9 percent for the second quarter and the actual rise in gross domestic product of 5.2 percent recorded in the first quarter.

"GDP growth rate in the second quarter of 2008 is likely to drop closer to 4 percent. However, the usual growth drivers--mining, construction, and business process outsourcing--retain their strength, but the wider impact of higher food and oil prices would offset some of their gains," FMIC and UA&P said in their joint research publication.

The joint publication, titled "The Market Call," also projected that inflation would exceed 10 percent starting June to peak at 10.5 percent by July, driven primarily by second-round effects of the skyrocketing crude oil prices

It added that interest rates, in general, may have a slight upward bias, especially at the longer end.

The research said the peso would also likely to continue to be under pressure in the third quarter, the import season in preparation for Christmas. It projected that the peso would depreciate to 45.10 by August.