Central bank sees lower inflation rate in Oct.

The increase in consumer prices may have slowed down in October, aided by the appreciation of the peso, ample supply of major food products, and the decline in imported crude oil.

This was according to the Bangko Sentral ng Pilipinas, which set its inflation forecast for the month at a range of 2.9 to 3.8 percent, but said there is a good chance that the actual figure would come in slower than the 3.6 percent registered in September.

“[Lower price of Dubai crude and favorable food supply], together with peso appreciation, could have offset the increase in domestic prices of premium and regular kerosene and electricity charges to cause an overall slower inflation for the month,” BSP Governor Amando Tetangco Jr. told reporters Friday.

In the first nine months of the year, according to an earlier report by the National Statistics Office, inflation averaged at 3.2 percent.

Should the central bank’s estimate of average price movement in October turn out to be accurate, inflation for the first 10 months of the year will settle between 3.2 and 3.3 percent.

This is within the official target of 3 to 5 percent for the year.

The BSP said consumer prices are expected to continue behaving favorably over the short term. As such, Tetangco said, the central bank has the flexibility to keep interest rates low for some time and support the growth of the economy.

On Thursday, the BSP decided to cut its key policy rates to new record lows of 3.5 for overnight borrowing and 5.5 percent for overnight lending.

With the reduction of the key policy rates—which influence commercial interest rates—the central bank expects to see an increase in demand for loans, and thus a rise in consumption and investments.

The BSP said higher domestic spending should help keep the Philippine economy afloat even as the crisis in the euro zone is prolonged and US economic activity remains lackluster.

Economic problems in the two major Western areas are expected to adversely affect export earnings of emerging markets like the Philippines. But the BSP said that, with strong domestic demand, the Philippines will be able to maintain a respectable economic growth rate.

In the first semester, the Philippine gross domestic product grew by 6.1 percent from a year ago. This was one of the fastest growth rates in Asia for the period.

Low interest rates, however, have a tendency to accelerate inflation. The BSP said, nonetheless, that any increase in prices that will result from the latest cut in interest rates is seen to be manageable and would not cause a breaching of the 5-percent targeted ceiling.

BSP officials said the low-inflation and low-interest rate environment should help attract more foreign direct investments and encourage existing firms to further invest.