Monday June 29, 05:53 AM
UPDATE 1-Manila c.bank sees June inflation at 2-decade low
MANILA, June 29 (Reuters) - Philippine inflation is likely to slow to 1.2-2.1 percent in June, its lowest in more than two decades, the central bank governor said on Monday, underlining expectations the monetary authority will cut rates next week.
It would mark a significant drop from May's 18-month low of 3.3 percent and continue an easing trend that is helping counter a rise in bond yields fuelled by concerns over how the government will fund a record budget deficit this year.
'This reflects our expectation for continued milder price increases and is consistent with our forecast for full-year 2009 and 2010 inflation rates that would both be within their corresponding target ranges,' Governor Amando Tetangco said in a text message to reporters.
Even at 2.1 percent, the high end of the forecast, inflation would be the lowest since April 1987.
Philippine debt yields were little changed in morning trade on Monday as market players had already factored in a slide in inflation, offsetting opposing pressures from concerns about the government budget.
'The benign domestic inflation scenario seems to be persisting, so that will work to benefit the market,' said a debt trader from a big local bank. 'What they are up against is market sentiment.'
The funding concerns pushed yields to at least four-month peaks this month.
On Saturday, Tetangco reiterated the Philippines had scope to trim interest rates, adding central banks around the world can refrain from raising rates even as the global economy recovers because inflation is not the main worry.
The Southeast Asian nation, which is targeting inflation of 2.5-4.5 percent in 2009 and 3.5-5.5 percent next year, has slashed its key overnight borrowing rate by 1.75 percentage points since December.
The rate now stands at 4.25 percent, the lowest in 17 years.
June inflation data will be released on July 7 and the central bank holds a policy meeting on July 9.
Many analysts expect the central bank to cut its policy rate by a quarter of a percentage point to a record low of 4.0 percent, in what most say would be the end of the easing cycle.
'The continued decline in the inflation rate in June could have been due to lower electricity rates during the month and slower price increases in certain food items and in domestic pump prices,' Tetangco said.
He said the central bank will 'continue to monitor price developments, both domestically and in international markets, to ensure that our policy stance remains appropriate and responsive.'
(Reporting by Manolo Serapio Jr.; Editing by Neil Fullick)
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