THE BANGKO Sentral ng Pilipinas sees a good chance that the inflation rate would decline to 9.8-9.9 percent in December due to the sharp fall in global oil prices and an anticipated yearend peso rally against the dollar.

The forecast of a slower increase in consumer prices toward the end of the year was contained in a report discussed by the BSP's Monetary Board during its monetary policy setting meeting on Thursday, top monetary authorities said.

During the meeting, the Monetary Board kept the BSP's key interest rates steady, stressing the need to curb the still high core inflation rate and the pressure from the depreciation of the peso against the dollar.

Under its latest outlook, the BSP sees the inflation rate going back to single-digit level by the end of the year, an improvement from its earlier forecast.

Earlier, the BSP said it was expecting the inflation to hit single-digit level again in late first quarter or early second quarter of 2009.

Given the 9.8- to 9.9-percent inflation rate projection for December, a BSP official said the average increase in consumer prices for the whole of 2008 would be well within the BSP's 9 percent to 11 percent forecast.

In a separate interview, another official explained: "We're just saying there's a likelihood it will fall to single-digit level because of the sharp decline in oil prices and the possibility that the peso will firm up toward the end of the year due to the remittance season."

The country's year-on-year inflation rate, jacked up by skyrocketing food and fuel prices in earlier months, peaked at 12.5 percent in August. It, however, slowed to 11.8 percent in September and to 11.2 percent in October.

Last week, global oil prices fell to below $55 a barrel, as fresh recession worries sparked fears about a slowing global energy demand. In the middle of this year, oil prices a record-high of $147 per barrel.

And while the peso breached the 50:$1 psychological barrier last week, the BSP expects the local currency to firm up against the greenback on the back of heavy remittances from overseas Filipino workers during the Christmas season.

On Friday, the peso rebounded to 49.82 at closing after hitting an intra-day low of 50.17 against the dollar.

Earlier, the central bank slashed the reserve requirement on banks by 2 percentage points. The reserve requirement, now set at 19 percent, is the ratio of deposits and deposit substitutes that banks are required to keep in low-yielding and liquid assets at the central bank.