Philippine annual inflation in January was likely to come in between 7 and 7.9 percent, slower than 8.0 percent in December, on easing food prices, Bangko Sentral ng Pilipinas (BSP) governor Amando Tetangco said on Thursday.

"The expected further slowdown in inflation would have been due to lower domestic oil prices and the peso's strengthening during the month," he said.

Tetangco noted the inflation rate could continue dropping to average 5.5 percent in 2009.

But he said the decline could also be tempered by increases in prices of major food items such as pork on seasonal demand.

Central bank deputy governor Diwa Guinigundo said, meanwhile, upside pressures on inflation would likely come from possible increases in water and energy rates.

Guinigundo noted that state-owned National Transmission Corp. has a pending request for an adjustment in transmission rates and the water sector was also asking for a similar adjustment.

However, with the decline in oil prices, Guinigundo said these adjustments might no longer be necessary, thus removing further pressure on the prices of basic commodities.

"There is less ground for utility firms to ask for adjustments if oil prices would remain steady," he stated.

Due to slowing inflation and the need to support growth, analysts expect the central bank to cut its key interest rates by 50 basis points at its policy meeting later Thursday.

Early last year, the BSP hiked its key policy rates by a total of 100 basis points as inflation rate rose to over 12 percent.

By December, however, the BSP started to bring down its rates to 5.5 percent for overnight borrowing and 7.5 percent for overnight lending. With a report from Reuters