The central bank, Bangko Sentral ng Pilipinas (BSP), hinted Friday at a potential cut in interest rates as it cheered a third month of sustained slowdown in the inflation rate and its fall to single-digit level ahead of expectations.

BSP Governor Amando Tetangco Jr. said the decline in inflation to 9.9 percent year-on-year in November, compared with the central bank?s forecast of 10.3-11.2 percent, was ?indeed a pleasant surprise, as it provides greater monetary policy space.?

Tetangco noted that lower price movements were marked all across the consumer basket. The inflation rate in October was 11.2 percent.

?Month-on-month inflation actually sustained a decline while core inflation??which strips volatile items such as food and energy to get underlying price trend??appears losing steam,? he said.

?That should encourage lower market rates and boost economic activity by the private sector,? he added. ?That should also increase confidence in the foreign exchange and equities markets.?

Analysts said the statement suggested willingness of the BSP, which already eased monetary policy last month through a two-percentage-point reduction in the reserve requirement on banks, to take another step further in easing monetary policy. This is especially since across the region, central banks are scrambling to cut key interest rates to spur domestic economic growth amid expectations of a global recession by next year.

Roland Avante, treasurer at Chinatrust (Philippines) Commercial Bank, said the ?BSP will be in a position to do a rate cut as inflation continues its downward spiral. Hopefully, pressure on the foreign exchange will diminish and allow room for a rate cut.?

Rizal Commercial Banking Corp. senior vice president Marcelo Ayes said the BSP would ?most definitely? slash its overnight borrowing rates soon. ?We are joining the bandwagon of [central banks] easing rates.?

While the direction was toward interest rate cuts, some analysts said it might not necessarily be during the next policy rate setting of the governing body of the BSP, the Monetary Board, on Dec. 18.

?My guess is there will be none till yearend. Maybe (there will be) when the market wakes up in January, they may consider one,? said Reevie Vergara, treasurer at Land Bank of the Philippines. Doris C. Dumlao; with editing by INQUIRER.net