Inflation likely peaked in September, according to socio-economic planning secretary Ralph Recto and there is a pressure to "ease interest rates".

This will bring the central bank back to providing more liquidity after increasing interest rates by one percentage point since June to combat inflation.

Economic managers briefing reporters yesterday on the effects of the global financial crisis on the Philippines said that there may be a need to cut interest rates to support growth.

"Maybe inflation has peaked and inflation is going down, brought about by supply side," Recto said.

"There is pressure to ease interest rates," he said, noting that commodity prices have started to fall.

The central bank meets on Monday, October 6, instead of Thursday to review interest rates, two days after the government announces September inflation data. The meeting was advanced to allow BSP Governor Amando Tetangco to chair the meeting. Tetangco is scheduled to fly to US on Tuesday to attend the annual International Monetary Fund- World Bank meetings.

Inflation in August hit a 17-year high of 12.5 percent and the central bank has forecast that September inflation could rise as high as 12.7 percent.

Analysts had said another increase was likely, but a resurgence in the global credit crisis following the shockwaves from Wall Street has changed that view.

"I am not saying interest rates should be eased. It depends on what our neighbors are doing, what emerging markets are doing," Recto said.

In Asia, China and Taiwan cut their policy interest rates last month to cushion their economies from the global downturn. Since a flood of money from central banks is having limited impact on loosening up global credit markets, a round of cuts in official interest rates may be the next step for policy makers.

Recto said strong typhoons that may hit the country in the fourth quarter could still fan inflation. Food prices would rise if the severe weather destroys local crops and hampers distribution.

Another factor to consider was the currency, he said. A rate cut would further weaken the peso, which has fallen about 12 percent this year against the dollar.

"I am in favor of a stronger peso and you know that is dependent on fiscal, trade and monetary policy as well, so there should be a good mix," he said.

The economic managers reiterated that growth would skid to about 4.4-4.9 percent this year, the latest downgrade in forecasts.

"We feel that there will still be a slowdown in the US economy and we are not taking out the possibility the US can go into recession," Recto said.

To support economic activity, the government wants to sell its 40 percent stake in oil refiner Petron Corp. and a portion of its holdings in oil-and-gas explorer PNOC-Exploration Corp. this year to fund spending on roads, bridges and expressways.

It hopes to raise 25 billion pesos ($531 million) from its Petron stake and at least 16 billion pesos more from PNOC-Exploration. The funds would also be used to limit the budget deficit.

The sale price values Petron at P6.67 per share, a 13 percent premium to its current market price of P5.90.

"The best case is 50 billion with the privatisation," Finance Secretary Margarito Teves said regarding the 2008 budget deficit. The government has set a 2008 deficit goal of as much as P75 billion, or 1 percent of gross domestic product.

Teves said he remained hopeful the government would fetch bids close to its valuation of Petron and PNOC-Exploration despite the depressed market. He said the government would defer the sale if bids are too low. – Reuters