The policymaking Monetary Board yesterday decided to keep Bangko Sentral ng Pilipinas’ (BSP) key policy interest rates steady, due to improving inflation outlook of the country.

BSP’s key policy interest rates currently stands at 6 percent for the overnight borrowing and 8 percent for the overnight lending.

These were increased by a total of 100 basis points this year due to the global economic crunch that caused the country’s inflation reaching 12.5 percent last August.

Actual inflation figures for September will be released today and BSP officials are optimistic that it would be at the lower-end of the forecast of 11.8 to 12.7.

BSP governor and MB chairman Amando Tetangco said that the inflation outlook "indicates that inflation will decelerate to single-digit levels by the first quarter of 2009".

The MB also took into consideration global and regional economic and financial developments, Tetangco said.

"At this point, the monetary authorities have the latitude to keep policy settings steady," Tetangco said.

He added that food and energy prices are retreating from recent highs, and this could indicate lower headline inflation and more flexibility for monetary policy.

"There is no further evidence of second-round effects in terms of additional wage and transport fare adjustments."

The central bank chief added that there are also signs of improving inflation expectations with the easing of oil and rice prices.

However, Tetangco cautioned that there would be continued vigilance over price developments, hinting that tightening is not yet over.

"The BSP is ready to reexamine policy settings when warranted," Tetangco said.

BSP deputy governor Diwa Guinigundo said that it is too early to cut rates.

"But the reason for maintaining inflation has become favorable. The inflation outlook is improving," Guinigundo said.

He maintained that the country should be back to single-digit inflation by the first quarter next year and range between 2.5 to 4.5 by 2010.

"Everything is possible. If oil and rice prices go down, and we turn in a bumper harvest, our forecast of single digit inflation rate will be seen by first quarter 09," Guinigundo said.