By MAX ESTAYO

Bangko Sentral ng Pilipinas governor Amando Tetangco Jr. said yesterday the slowing down of economic growth in the first quarter will provide the needed relief from inflationary pressures.

This will give the BSP room not to increase interest rates so that growth can be sustained.

Personal consumption grew a seasonally adjusted 0.3 percent in the first quarter compared to 1.8 percent in the fourth quarter and the slowdown giving the central bank room to hold off increasing rates.

The monetary authority meets next Thursday and economists are divided on whether policy rates would be raised for the first time since 2005.

Finance secretary Margarito Teves added that the pump priming and frontloading of government expenses will result in higher growth for the second quarter.

The National Economic and Development Authority said the economy grew by 5.2 percent in the first quarter from 6.4 percent a quarter earlier and was at the low edge of the government’s 5.2-6.2 percent forecast for the period.

The inter-agency Development Budget and Coordination Committee has narrowed its growth target this year to 5.7-6.5 percent from 6.3-7 percent, anticipating the impact of high oil and food prices and slower exports on the local economy.

Tetangco said the decline in the first quarter was expected given the "above-trend growth" last year. The economy expanded by 7.2 percent last year, the highest in more than three decades.

"The slowdown can provide some relief to inflation, as it reduces pressure from the demand side," Tetangco said.

Inflation rose by 8.3 percent in April, its fastest pace in three years, stoked by food and oil prices. While the 2008 inflation target of 3-5 percent is expected to be breached due to the continued escalation of commodity prices, monetary authorities said the 2009 target of 2.5-4.5 percent remains intact to date.

Should there be signs that next year’s target is "at risk," Tetangco said the BSP is ready to act "preemptively" and "decisively" to contain inflation by increasing its policy rates.

Tetangco said the BSP is closely monitoring second-round price pressures that may ensue from the volatile food and fuel prices.

At the same time, he said monetary authorities are will also have to continue, "to ensure that the liquidity that is in the system is just appropriate for the level of expected economic activity."

"We hope to see higher growth in the second quarter as the government increases spending on infrastructure and social services to help affected sectors cope with rising oil and food prices," Teves said.

"The improved revenue performance in the first four months would help ensure that the government could fund higher levels of spending in the coming months," he added.