By Eileen A. Mencias

The Bangko Sentral yesterday reduced its benchmark interest rate for the second time in six weeks to help shield the economy from a global recession.

?Given the improved inflation outlook, the Monetary Board believes that there is room for further easing in the monetary policy stance, which should also provide support to financial markets and the real economy,? Bangko Sentral Gov. Amando Tetangco Jr. said in a statement.

The central bank lowered the rate it pays banks for overnight deposits to 5 percent from 5.5 percent, or by 50 basis points.

Deputy Gov. Diwa Guinigundo said the central bank now forecast inflation at 3.9 percent this year and 4.7 percent in 2010, well within its target of 2.5 percent to 4.5 percent and 3.5 percent to 5.5 percent, respectively.

Tetangco said the central bank expected inflation in January to fall within 7 percent to 7.9 percent from 8 percent in December because of lower domestic oil prices and the strengthening peso.

?The decision of the MB is preemptive. We want to make sure we avoid a tightening of credit in the market,? Guinigundo told reporters. ?As the global turmoil continues, and we have yet to see the bottom of this, the depth and duration of the crisis continues to be a concern.?

The central bank also reduced the rates on the special deposit accounts.

Tetangco said the central bank wanted to encourage banks to pass on the rate cut to borrowers.

The ?depth and duration? of the global crisis are a ?major concern,? Guinigundo said. Inflation may be stoked anew by rising oil prices or a depreciating currency, he said.

New Zealand slashed borrowing costs to a record low yesterday and the US Federal Reserve left its benchmark rate as low as zero as policy makers grapple with the world economy?s worst crisis since the Great Depression.

Central banks in Thailand, Indonesia and Malaysia this month cut their benchmark interest rates more than economists expected. Inflation in the Philippines probably cooled for a fifth straight month in January, Tetangco said yesterday.

Philippine growth slowed to 4.5 percent in the fourth quarter from 5 percent in the previous three months, the government said earlier yesterday.

?It?s a question of damage limitation,? said George Worthington, chief Asia-Pacific economist at Thomson IFR in Sydney. ?The Philippine economy has been relatively insulated but things may become decidedly nastier.?