(RTTNews) - Giving more focus to the above-target inflation than the slowing economic growth, the Philippine central bank raised its interest rates by 25 basis points in a widely expected move.

At its meeting on Thursday, the Bangko Sentral ng Pilipinas Monetary Board increased its overnight borrowing or reverse repurchase rate to 6% and the overnight lending or repurchase rate to 8%. The central bank raised its rates for the third month in a row. In July, the central bank had hiked rates by 50 basis points followed by 25 basis points increase in June.

In a statement accompanying the policy announcement, the central bank said, “The Monetary Board recognized that further measured tightening of monetary policy was necessary given the latest forecasts indicating above-target inflation for both 2008 and 2009.”

Further, the central bank noted that appropriate tightening of the monetary policy is needed to stabilize inflation to within the target range over the policy horizon and to contain inflation expectations. According to the assessment of the rate-setting committee, fluctuations in international oil prices continue to pose a major risk to the Philippines’ inflation outlook. At the same time, the central bank expects the recent easing in global food and oil prices to help to moderate inflation pressures.

In July, Philippines’ inflation had risen to 12.2% and the central bank had hiked its inflation forecast for 2008 to a range of 9%-11% from an earlier projection of 7%-9%. The central bank aims to keep the annual headline inflation under the inflation-targeting framework at 4% for 2008 and 3.5% for 2009 with a tolerance interval of � 1.0 percentage point.

Earlier in the day, the National Statistical Coordination Board reported that the Philippines economic growth slowed to 4.6% in the second quarter from 5.2% recorded in the first quarter.

Separately, the central bank revealed results of its Business Expectations Survey, which showed that the business outlook in the Philippines turned bearish in the third quarter of 2008. The overall confidence index recorded its first negative reading of minus 12.9 since the third quarter of 2005. The central bank said the decrease in sentiment is consistent with the fall in business and consumer morale observed in many developed economies due to the less favorable global economic and financial conditions.

However, survey participants were broadly optimistic that business conditions would improve in the fourth quarter of 2008, as the confidence index reverted to plus 16.6.

The survey found that the weakness in confidence was widespread in all types of firms in the third quarter. Business firms cited competition, weak demand and high interest rates as major constraints, which could limit their business opportunities in the third quarter.

Further, the survey found that firms anticipate weakness in peso, acceleration of inflation and increase in interest rates in the third and fourth quarters.

According to the assessment of respondents, the situation in the labor market is expected to be positive in the fourth quarter as firms are expected to hire additional employees. The survey found about 25% of respondents from the industry sector indicated expansion plans in the last quarter of 2008.

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