Slowing inflation provides the central bank scope to lower borrowing costs to help boost economic activity, Bangko Sentral Gov. Amando Tetangco said yesterday.

Cooling inflation ?supports our view that we will be within target this year,? Tetangco said in a speech at an economic forum sponsored by Security Bank Corp. yesterday. ?This provides the central bank room for policy maneuvering to counter the effects of slowdown.?

The central bank will probably cut its benchmark interest rate for a third straight meeting in March to boost economic growth after exports fell the most in at least 27 years.

?Assuming circumstances don?t change, the direction is still for easing and it?s just a question of the magnitude,? Deputy Gov. Diwa Guinigundo said in a separate interview late Tuesday. Inflation expectations remain ?well-anchored,? he said.

Slowing inflation provides the Bangko Sentral with more room to cut borrowing costs and spur domestic demand as a global recession crimps exports. Lower interest rates and increased public spending may enable the Philippines to meet the higher end of the government?s 2009 economic growth forecast of 3.7 percent to 4.7 percent, Economic Planning Secretary Ralph Recto said last week.

Exports plunged 40.4 percent in December from a year earlier, the government reported Tuesday, the biggest drop in at least 27 years. Growth in remittances, funds sent home by Filipinos overseas, may stall this year as the global recession cuts demand for workers, Guinigundo reiterated Tuesday.

?This strengthens the case for a more aggressive easing from the central bank and increases the urgency for government support,? said Vishnu Varathan, a regional economist at Forecast Singapore Pte. ?Remittances will be the next shoe to drop.?

The government may revise some of its economic forecasts for this year, Guinigundo said.

Inflation eased to 7.1 percent in January after reaching a 16-year high of 12.4 percent in August, allowing authorities to cut the overnight borrowing rate by half a percentage point each in December and January, to 5 percent. The next policy meeting will be on March 5.

The central bank expects inflation this year and next to be within target after cooling to a 10-month low last month. Policy makers cut the overnight borrowing rate by a half-percentage point each in December and January to 5 percent.

Gov. Tetangco may cut the benchmark rate by another half-percentage point on March 5, said Marcelo Ayes, senior vice president for treasury at Rizal Commercial Banking Corp., predicting the peso may weaken to as low as 50 to the dollar this quarter.

The peso, meanwhile, weakened yesterday for the first time in seven days and two-year bonds gained after the central bank signaled it will cut interest rates next month to stimulate domestic demand. Bloomberg