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The Bangko Sentral ng Pilipinas said on Tuesday it was likely to keep rates at current low levels for the time being, but authorities have mapped out an exit strategy from its easy money policy.

BSP governor Amando Tetangco said the timing of the strategy’s implementation will depend on a host of factors, foremost of which is the inflation outlook.

"We have an exit strategy that has already been crafted so we have a plan. The crucial thing here is the timing of the implementation of such plan," Tetangco told the Foreign Correspondents Association of the Philippines.

"We will be guided mainly by the inflation outlook and how this inflation outlook compares to the inflation target."

Tetangco said the country is on course to meet its inflation targets for 2009, 2010 and 2011, set at 2.5 to 4.5 percent, 3.5 to 5.5 percent and 3 to 5 percent, respectively.

He added that demand conditions remained relatively weak which warranted a continuation of stimulus measures.

"We can maintain the current stance of monetary policy for some time," Tetangco said.

The BSP kept its key policy rate at a record low of 4 percent for the fourth straight meeting in a row on Dec. 17 and indicated it was in no hurry to raise rates.

Five of 10 analysts surveyed by Reuters this month expect the first rate increase to come in the third quarter of next year. Four predict it will be in the second quarter.

The BSP said it expects an uptick in the prices of consumer goods in December.

Tetangco said they forecast inflation to fall within the band of 3.7 to 4.6 percent, which "would still allow for full year average inflation to tip within the target for this year."

Even if inflation for December hits the higher end of the forecast at 4.6 percent, the full year average will settle at 3.36 percent.

"The expected uptick in December is due to increased demand for certain food items," Tetangco said.

Inflation in November registered at 2.8 percent, for a first 11-month average of 3.2 percent.

Tetangco added that over the next two years "inflation is expected to fall below the middle of the respective target ranges."

"The favorable inflation outlook reflects the moderate growth of the domestic economy in 2009 and 2010," Tetangco said.

He said that the recovery of the global economy may also take longer than expected as significant weaknesses linger.

The Monetary Board noted that, given the favorable inflation outlook, keeping policy rates unchanged could also encourage further investment and borrowing activity.

The BSP also reiterates its support for non-monetary measures to address supply-side risks to consumer prices and shall continue with its periodic review of policy settings in light of its mandate to safeguard price stability.

The Reserve Bank of Australia is the only major central bank in the Asia-Pacific region to have lifted rates since the global crisis. But central banks in India and South Korea have signalled they may start raising rates soon.

Tetangco reiterated the central bank will likely take its first step at policy tightening by taking out some liquidity measures before it touches policy rates.

"This is a process that I expect to be done in a phased manner with the first phase covering liquidity enhancing measures and later on, if necessary, policy interest rates will have to be reviewed and that will depend on the outlook for inflation," Tetangco said.

Other than cutting rates, the central bank reduced banks’ reserve requirements by 2 percentage points in November 2008.

It also raised the size of its peso rediscounting facility twice to 60 billion pesos ($1.3 billion) as part of moves aimed at creating more liquidity in the market amid the global downturn.-with Jimmy Calapati

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