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INSTANT VIEW 2-Philippines' Sept annual inflation eases to 3.6 pct y/y

MANILA, Oct 5 (Reuters) - The Philippines' annual inflation rate slowed in September, increasing the scope the central bank has to cut rates to support the domestic economy in the face of gloomy global conditions.

The consumer price index rose 3.6 percent in September from a year earlier, slowing from the previous month's 3.8 percent pace. A Reuters poll had forecast the September pace would again be 3.8 percent.

In September, utility prices rose more slowly than a year earlier. That offset food costs due to typhoon-caused related supply disruptions.

Economists said policymakers have scope to adjust policy rates, with inflation in the nine-months to September at 3.2 percent, near the bottom of the central bank's 3 to 5 percent target band for 2012. --------------------------------------------------------------

Change in pct Sept Aug July June May Apr Mar Headline (yr/yr) 3.6 3.8 3.2 2.8 2.9 3.0 2.6 Headline (mth/mth) -0.1 0.8 0.3 0.5 0.1 0.8 0.2 Core (yr/yr) 3.8 4.3 4.1 3.7 3.7 3.6 3.0

* Key items in September, yr-yr change:

- Food, non-alcoholic beverages: up 3.7 pct (August up 3.3 pct)

- Food alone: up 3.6 pct (August up 3.3 pct)

- Housing/water/electricity/gas: up 4.5 pct (August up 5.6 pct)

- Transport: up 1.7 pct (August up 1.2 pct)

* For a graphic on rates and inflation:

COMMENTARY:

JEFF NG, ECONOMIST, STANDARD CHARTERED, SINGAPORE

"Despite inflation easing in September, upside risks to inflation persists. The result suggests that the price rises from storm disruptions have now faded. Energy prices eased in September but could potentially rise again, while we watch out for a food inflation uptick this quarter.

"In the short term however, the lower-than-expected inflation rate raises the probability that the BSP will cut rates in October. We think that there are still room for lower rates and expect the BSP to cut rates later this year."

TRINH NGUYEN, ECONOMIST, HSBC, HONG KONG

"The deceleration of headline CPI is primarily due to slowing oil prices as indicated by the housing, water, light and fuel category deceleration. Other CPI items are still elevated, including food. With headline inflation within target and will likely remain so for the rest of the year, we expect the BSP to keep rates low until end 2012."

JUN NERI, ECONOMIST, BANK OF THE PHILIPPINE ISLANDS, MANILA

"We are glad to see that core and headline inflation are starting to align towards a lower figure versus August, emphasizing the absence of unmanageable increases in prices, and therefore reiterating the room or the space that the monetary authorities still have to carry out further easing if necessary.

"There are several potential triggers (for further easing). One is the rapid appreciation of the peso. The last time they eased that was one of the more compelling reasons and since we were way below the inflation target range for the year, they had the justification to carry out more easing. The other is the weaker external environment. We are seeing significant contraction in remittances from Spain.

"It is becoming more likely the central bank will cut especially if the peso again continues to appreciate at this pace. With this data, it increases the probability of an October 25 cut."

RADHIKA RAO, ECONOMIST, FORECAST PTE, SINGAPORE

"After the early Q3 bump, price pressures seem to have ebbed and that brings the rate outlook back into focus. Contained inflation risks seen in conjunction with peso regaining its position as the regional best-performer, stock markets hit fresh high and inflows gaining momentum in wake of QE3, raises odds for a measured rate cut at the October meet.

"However, the BSP will need to balance this with firm domestic sector and risks of shifting policy to over-accommodative levels. It's a close call and official rhetoric will need to be monitored in the run-up to the meet."

MARKET REACTION: - The Philippine peso was quoted at 41.38 to the dollar in early deals, compared with Thursday's close at 41.47.

- The stock market

, which was not open, when the data came out, was up 0.7 percent at 0200 GMT. LINKS:

- For more data, click on the National Statistics Office website:

- PREVIEW on September inflation.............

- Reuters' interview with BSP Governor ......

KEY POINTS:

- The central bank, which has a 3 to 5 percent target band for price growth in 2012 and 2013, sees average inflation at 3.4 percent for this year and 4.1 percent next year.

- The Philippine central bank governor, Amando Tetangco, told Reuters on Sept. 26 that policy stimulus currently in place was sufficient to support domestic growth, but policy can be eased if needed later this year.

- The Bangko Sentral ng Pilipinas, which next meets on Oct. 25 to review policy, has kept its overnight borrowing rate at a record low 3.75 percent following three cuts this year - the last in July - totaling 75 basis points. The cuts were aimed at shielding the economy against external shocks.

- The Philippine economy expanded 6.1 percent in the first six months from a year earlier. Policymakers are optimistic growth will hit the higher end of a 5 to 6 percent target for 2012, with strong domestic demand likely to offset weakening shipments of electronics, the main export earner.

- Economists have said there was scope to ease policy further to dampen rapid peso appreciation and curtail speculative inflows.

- The Philippine peso

is the best performing currency among emerging Asian economies, with gains of nearly 6 percent against the dollar this year.

(Reporting by Karen Lema and Rosemarie Francisco; Editing by Richard Borsuk)

((karen.lema@thomsonreuters.com)(+632 841-8938)(Reuters Messaging: karen.lema.reuters.com@reuters.net))

Keywords: PHILIPPINES ECONOMY/INFLATION