By JIMMY CALAPATI

Inflation rather than an economic slowdown is the greatest risk and biggest policy challenge for developing countries in Asia, Asian Development Bank president Haruhiko Kuroda said.

Bangko Sentral ng Pilipinas Gov. Amando Tetangco fully agrees adding the BSP mandate is price stability.

This would mean fighting inflation takes precedence over growth.

Kuroda said last Friday that ADB would slightly lower its 2008 average growth rate forecast for developing Asia - as it defines Asia excluding Japan, Australia, and New Zealand - from its 7.6 percent estimate in April.

Tetangco said that by keeping prices down, long term, sustainable growth is possible.

Several government officials have called on the central bank to stop increasing interest rates that may stall further economic growth.

Economists said that present tightening mode of the BSP is doing "more harm."

He maintained that when price changes are kept at manageable levels, business as well as consumers could plan ahead.

Tetangco said that with greater predictability in the economic environment, the government can expect better-informed investment and consumption decisions which should lead to a pick-up in demand.

Tetangco disagrees that growth has slowed sharply.

"I disagree that economic growth has slowed sharply. The Q2 GDP growth rate of 4.6 percent is within the long-term trend growth rate that we have seen," BSP governor Amando Tetangco said.

He added that agriculture and the growth sectors of mining and BPO continue to show resilience.

The National Statistical Coordination Board (NSCB) said that the economy expanded by just 4.6 percent in the first semester, lower than the government's projection of 5.3 to 5.9 percent due to the impact of high inflation.

Economists said that the government's economic growth target of 5.5 to 6.4 percent this year would be a tough goal but said government spending in the second half may offset slowing domestic consumption arising from high food and fuel prices.

Tetangco maintained his stand that the economy has shown resilience, despite posting lower growth and high inflation.

Tetangco said that he expects the growth sectors, including BPO and services, and consumption generated by remittances to continue to provide support to the economy.

Meanwhile, the country's inflation in August reached 12.5 percent, a 17-year high.

Despite surging, Tetangco maintained that prices have "moderated", making analysts and economists wonder if the central bank will continue with its tightening.

BSP earlier said that the monetary policy would remain to be "appropriately tight".

"Our current monetary policy stance is calibrated with the view to guide inflation expectations, and therewith actual inflation, to move to the target range during the policy horizon," Tetangco said.

"Our runs still show that the inflation path will remain hump-shaped, with the inflation rate reaching the single digit territory by late first quarter/early second quarter next year," Tetangco said.

The Monetary Board increased late last month by 25 basis points-or a total of 100 basis points increase so far this year-BSP's key policy interest rates, bringing it to 6 percent for the overnight borrowing or reverse repurchase (RRP) facility and 8 percent for the overnight lending or repurchase (RP) facility.

An increase in the BSP's borrowing rate encourages banks to deposit more of their funds with the central bank.

This tempers the rise of money in circulation, which, in turn, eases growth in demand for goods and services.

By responding promptly to inflation risks, the BSP intends to reduce the risks to inflation expectations and the long-term cost to output growth from prolonged high inflation.