The Philippines lowered its growth estimates for this year and the next as the global economic downturn continued to take a toll on exports, putting more pressure on the central bank to cut policy rates.

The central bank meets to set interest rates later on Thursday and analysts expect authorities to deliver a 25-basis-point cut, the fourth reduction in a row since December, to stimulate the slowing economy.

"We're still looking for a 25 basis point cut at today's meeting," said Nicholas Bibby at Barclays Capital. "Inflation is starting to come down and the disinflation trend is going to accelerate as we go ahead."

After a meeting of the inter-agency Development Budget Coordination Committee (DBCC), the government slashed its 2009 gross domestic product growth forecast to 3.1-4.1 percent from the previous 3.7-4.4 percent because of continuing weak exports.

The Southeast Asian country also cut its 2010 GDP growth forecast to 4.3-5.3 percent from 4.9-5.8 percent, Budget undersecretary Laura Pascua told reporters.

The Philippines now expects a contraction of 13-15 percent in exports and a dip of 12 to 14 percent in imports this year, deeper than previous estimates of a decline of 6-8 percent and 8-10 percent, respectively, she said.

Exports make up about 40 percent of the country's GDP.

Exports tumbled 39.1 percent in February from a year earlier, easing slightly from a 40.6 percent fall in January, the government said earlier on Thursday.

The central bank has cut rates by 1.25 percentage points since December, bringing the overnight borrowing rate to 4.75 percent now, the lowest in 17-years.

Inflation not a worry

At the DBCC meeting, the central bank kept its inflation target at 2.5 to 4.5 percent this year and 3.5 to 5.5 percent in 2010, said Pascua. This follows 9.3 percent inflation in 2008.

But the revisions in growth goals were still above forecasts by multilateral development lenders.

The World Bank expects the Philippine economy to grow about 1.9 percent in 2009, the Asian Development Bank at 2.5 percent and the International Monetary Fund pencilled in a 2.25 percent forecast against actual expansion of 4.6 percent last year.

Increased fiscal spending to boost growth and weak state revenues this year will push the 2009 budget deficit to P199.2 billion ($4.18 billion), or 2.5 percent of GDP from 2.2 percent previously forecast, the government said.

Despite the pump-priming measures, analysts said inflation is unlikely to be a concern for the central bank.

"Even if the government runs a bigger deficit, there's very little implication on inflation because the economy still has a lot of excess capacity," said Simon Wong, economist at Standard Chartered Bank.

The government forecast budget deficit would likely be lower at P173 billion, or 2.0 percent of GDP, in 2010.

A higher fiscal shortfall would require additional borrowings, with Manila planning to increase its local debt issues by about P21 billion this year to P463.1 billion, said Finance undersecretary Gil Beltran.

Foreign borrowings will remain the same at around P150.4 billion, he said.

Receipts from the Bureau of Internal Revenue, the government's main tax agency, are being targeted at P850.6 billion, P15 billion lower than the previous forecast, because of the slowdown in the economy, Beltran said.