Dec. inflation may range from 4% to 4.9%

The Bangko Sentral ng Pilipinas said inflation was likely to settle within the 4-4.9 percent range in December, which would give officials the flexibility to cut interest rates when deemed necessary.

The central bank’s inflation forecast for the month will bring the average this year to about 4.5 percent, which is within the official target of between 3 and 5 percent.

The tempered rise in consumer prices is partly due to anemic growth in global demand, which slowed down the rise in the cost of imported goods. The cost of imports partly influences domestic inflation.

The lackluster performance of the global economy is largely influenced by the sluggish growth of the United States and the eurozone, both of which are struggling with huge debts.

Earlier, BSP Governor Amando Tetangco Jr. said the central bank was considering cutting its key policy rates in the first quarter of 2012 to support growth of the economy and partly shield it from the ill-effects of unfavorable developments offshore.

The key policy rates, which influence commercial interest rates, currently stand at 4.5 for overnight borrowing and 6.5 percent for overnight lending.

Lower interest rates help boost demand for bank loans, which support consumption and investments.

Reduced rates, which prop up demand, may result in higher inflation but Tetangco said the BSP had the flexibility to cut rates because the inflation outlook for the short term was favorable.

Should inflation rise as a result of lower interest rates, the increase in consumer prices is expected to remain within desired levels.

The BSP targets inflation to remain within the 3-5 percent range next year and in 2013.

“The outlook for inflation remains manageable as we continue to see within-target rates over the policy horizon,” Tetangco said.

In the first three quarters of this year, the economy grew by a mere 3.6 percent. Economic growth for the entire year was expected to fall below the 4.5 percent target. Last year, growth was at a three-decade high of 7.6 percent.

The slowdown this year is blamed on the global turmoil that led to reduced demand for products from the Philippines and other exporting countries.—Michelle V. Remo