* Inflation slows for second straight month in December
* Slower inflation allows c.bank to cut rates this year
* CPI seen returning to within c.bank’s target this year (Adds c.bank deputy gov comments, stock market rally)
By Karen Lema and Neil Jerome Morales
MANILA, Jan 4 (Reuters) - Inflation in the Philippines cooled more than expected in December as food and transport costs rose at a slower pace, reinforcing views that the central bank is done raising interest rates and giving it room to lower borrowing costs if needed.
Data on Friday showed the smallest rise in the consumer price index in seven months, cheering investors after five straight rate hikes last year raised the risk of slower economic growth.
Headline inflation slowed to a seven-month low of 5.1 percent in December from a year earlier, below the 5.6 percent forecast in a Reuters poll and the central bank’s 5.2-6.0 percent estimate for the month.
“With inflation trending back to the BSP’s target of 2-4 percent, the case for the BSP to reverse its stance as early as the second quarter 2019 has gained considerably,” said Nicholas Mapa, senior economist at ING Bank in Manila, adding that a rate cut should boost growth this year.
The Philippine stock market rose as much as 1.6 percent to its highest in four months.
“What’s important is there’s a broader expectation that inflation is decelerating”, said Garie Ouano, research director at Chinabank Securities Corp.
Price pressures have now eased for two straight months, bringing the average inflation rate for 2018 to 5.2 percent, still outside the central bank’s 2-4 percent target for 2018 and 2019.
But for this year and next, the central bank expects inflation to moderate further to 3.2 percent and 3.0 percent respectively, as the government lifts restrictions on rice importations.
Even so, central bank Deputy Governor Diwa Guinigundo said authorities will “continue to confront the issue of inflation with appropriate and vigilant stance of monetary policy... without losing sight of the requirements of economic growth.”
Rising fuel prices and higher taxes on certain commodities pushed up inflation last year, and it reached a near-decade high in September and October before it started to cool.
The central bank next meets on Feb. 7 to review policy. It left rates on hold on Dec. 13 after five straight hikes totalling 175 basis points that brought the rate on its reverse repurchase facility to 4.75 percent.
Additional reporting by Enrico dela Cruz Editing by Jacqueline Wong & Kim Coghill