LEGASPI CITY, Albay, Philippines?The decision of the US Federal Reserve to keep its rates at near zero has given the Bangko Sentral ng Pilipinas further leeway to maintain its own policy rates at historic lows, BSP Governor Amando Tetangco Jr. said.

Tetangco said the US Fed decision indicated its expectation that inflation in the United States would remain benign within the short term. As such, "imported inflation" would also be benign.

Since the Philippines imports some of its consumer and capital goods from the United States, US prices have an impact on prices in the Philippines as well.

"This [US Fed decision] indicates a favorable inflation outlook," Tetangco told reporters at the sidelines of the inauguration of a new BSP branch here. He said the central bank still saw its policy rates appropriate, noting there has not been significant pressure to increase them.

The BSP's overnight borrowing and lending rates currently stand at 4 and 6 percent, both of which are historic lows.

The US Fed rates are at a range of zero to 0.25 basis points.

Tetangco said the BSP has not been pressured to raise its key policy rates even if more and more central banks in the region have been hiking their own policy rates.

"Our policy now is to keep interest rates steady due to favorable inflation outlook. Given this, we [BSP] continue to have flexibility to support economic growth," Tetangco said.

The BSP's rates were brought down to historic lows to help the economy avoid a recession amid the global economic crisis, which peaked in 2009. The rates have been at 4 and 6 percent since July last year.

Monetary officials say low rates encourage borrowings, which support consumption and investments. In turn, increase in spending boosts growth of the economy. They credit increase in loans for the country's ability to avoid recession last year, when it grew by 1.1 percent.

The move to bring interest rates to historic lows mirrored that of many central banks across the globe. However, some foreign central banks have already started to increase their rates amid recovery of their economies and signs of accelerating inflation. Since low interest rates push demand, it causes faster inflation.

In the case of the Philippines, however, the BSP said that while the economy has been rebounding from last year's slowdown, inflation has remained benign and would likely be so within the short term.

Given this, the BSP can afford to keep rates at historic lows without causing inflation to breach official targets.

The government intends to limit inflation in 2010 within the range of 3.5 to 5.5 percent, and next year within the range of 3 to 5 percent.

The BSP said that based on latest indicators, inflation is expected to fall within the target ranges.

Inflation averaged at 4.2 percent in the first seven months of the year.