Oct. 8--CONSUMER prices began easing in September after peaking at a near 17-year high the month before.

In a statement, the National Statistics Office said inflation last month slowed to 11.9 percent from 12.5 percent in August. The September figure is within the Bangko Sentral ng Pilipinas' (BSP) forecast of between 11.8 percent and 12.7 percent.

Last month's average rise in prices, however, remains a 16-year record, and is higher than the 2.7 percent registered in the same month last year.

Stripping out volatile food and energy items, core inflation reached 7.5 percent last month.

The BSP earlier said that inflation would peak in either September or October.

Citing the prospect of lower inflation ahead, monetary authorities on Monday decided to keep their interest rates steady to support economic growth going forward.

The Monetary Board's decision halted a series of increases totaling 100 basis points since June, when inflation hit the double-digit territory. With the decision to halt its rate hikes, the BSP's overnight borrowing and lending rates still stand at 6 percent and 8 percent, respectively.

Despite easing inflation last month, the BSP has maintained its full-year forecast of 9 percent to 11 percent for this year and 6 percent to 8 percent for next year.

In a recent report, UBS Investment Research said the BSP could still increase rates by 25 basis points or 50 basis points before the end of this year.

The Swiss bank said monetary authorities would, however, cut rates next year to encourage lending and boost economic growth, adding Philippine policy rates could end next year at 6 percent or lower.

"We expect any BSP policy tightening that remains in the pipeline to be reversed within 12 months. We think one or two further 25 basis points BSP policy rate increases are possible this year, with rate cuts on the cards in 2009 such that rates finish next year at 6 percent or a little lower," Edward Teather, UBS economist, said.

UBS said Philippine economic growth would further slow next year as exports growth will remain weak due to the US slowdown.

The investment bank has downgraded its gross domestic product (GDP) growth forecast for the Philippines to 3.5 percent next year from the earlier forecast of 4.5 percent. The National Economic and Development Authority (NEDA) had forecast a 4.1-percent to 5.1-percent expansion in 2009.

UBS, however, maintained its growth forecast of 4.5 percent for this year, which is within the 4.4- percent to 4.9-percent range NEDA set.

"We have downgraded our expectations for Philippines real GDP growth from 4.5 percent in 2009 to 3.5 percent. Our 2008 forecast is unchanged. The driving force behind this revision is the downward revision of our US GDP real growth forecast to 0.3 percent in 2009 from 1.2 percent and the associated downgrades elsewhere such that our global growth forecast is reduced to a recessionary 2.2 percent," Teather said.

"Our growth projection for 2009 is below the government's forecast range and that of the consensus. However, the reason for our increased concern regarding growth is cyclical not structural," he said.

UBS said Philippines exports to GDP ratio is not high by Asian standards but considered meaningful. However, it does represent an important transmission channel for income growth in good times and bad.

The Swiss bank said remittance inflows, however, would continue to grow next year.

"While remittance flows may well continue to grow, we consider the associated linkages to be potential conduits for confidence effects in an economy where other business and financial linkages to the global economy are less sizable than in, say, Singapore and [Hong Kong]. Our revised forecast reflects the increased magnitude of the shock transmitted by these linkages," Teather said. --With Maricel E. Burgonio

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