The rate of increase in consumer prices eased to a 16-month low of 4.8 percent in April, reinforcing market expectations that the central bank will cut rates for the fifth time in as many months at a policy meeting later this month.

Based on data from the National Statistics Office (NSO), last month's inflation figure was down from the 6.4 percent recorded in March and well below the 8.3 percent in April 2008.

It was broadly in line with the Bangko Sentral ng Pilipinas' (BSP) forecast of 4.5-5.4 percent and the 4.7 percent estimate in a Reuters poll of market analysts last week.

The latest inflation figure was also the lowest since December 2007 and was on track to hit the BSP's recent estimate of below 1 percent by June.

"We are encouraged by the increased flexibility afforded to monetary policy by the continued improvement in the inflation outlook, coupled with the stability of the financial markets," BSP Governor Amando Tetangco said in a mobile text message to reporters.

Except for the services index, whose rate inched up 1.7 percent from 1.6 percent in March, all the other commodity groups--including food, beverage and tobacco, clothing, housing and repairs, and miscellaneous items--showed slower increases in prices.

The fuel, light and water group contributed the most to the decline in the overall consumer price index with a contraction of 2.4 percent, although slower than the 2.8 percent in March.

Vishnu Varathan, an economist at Forecast Pte Ltd in Singapore, said: "Inflation easing seems to be largely in line with expectations as base effects bite in harder. We can see this effect accentuating the regional and global disinflation trend and is evident in the significant easing in food inflation."

"The result is slightly above market expectations. It is in line with our view that headline inflation is coming down and is going to proceed below 1 percent in the third quarter," said another economist, Simon Wong of Standared Chartered Bank in Hong Kong.

More interest rate cuts

Soon after the release of the April numbers, Tetangco said monetary authorities were given more room to ease policy, but they were still monitoring how previous policy moves have filtered into the economy.

"We continue to keep a close eye on the medium-term implications of previous monetary policy easing to ensure orderly adjustment of liquidity conditions," he said.

Kenneth Cheng, chief analyst at Informal Global Markets in Singapore, said the central bank's forecast of a sharp further drop in inflation meant more monetary easing was in store.

"The implication really is, we are going to see more rate cuts especially in light of lower growth forecasts," he said.

The government's latest forecast sees 2009 economic growth slowing to 3.1-4.1 percent from 4.6 percent in 2008, but some economists are more pessimistic and expect the global downturn to have a greater impact on the Philippine economy. The International Monetary Fund, for instance, gave a zero growth projection for the Philippines this year.

Economists polled by Reuters last week predicted an annual inflation of 4.7 percent in April and most saw the central bank cutting rates by 25 basis points at its May 28 policy meeting.

The central bank has reduced rates by a total 1.5 percentage points since December, bringing the overnight borrowing rate to a 17-year low of 4.5 percent, even as some of its neighbours have paused after a series of rate cuts. With Reuters