SCENARIOS-Manila c.bank to flag rising risks to inflation view

MANILA, Nov 4 - The Philippine central bank is expected to flag increasing risks to its inflation outlook because of higher fuel and food prices but will likely maintain an easy monetary stance.

The consensus among analysts is that the monetary authority will keep its overnight borrowing rate at a record low of 4.0 percent for the third meeting on Thursday, even though they expect inflation to have ticked up further in October..

October inflation will also be released on Thursday, ahead of the rate announcement.

Following are possible outcomes of central bank's meeting:

RAISE AVERAGE INFLATION FORECASTS FOR 2009 AND 2010

Policymakers may raise average inflation forecasts for this year and next to take into account higher oil prices and after strong typhoons disrupted farm output.

But the revised figures are likley to fall safely within the government's inflation targets for 2009 and 2010, with the overall outlook staying favourable.

The average inflation estimate for this year is 3.03 percent and 3.43 percent for next year.

Governor Amando Tetangco will likely repeat that the central bank has enough headroom in case inflation further accelerates, giving it flexibility to keep its monetary policy loose.

But emerging inflationary pressures may suggest that its room to stick to an accommodative stance is getting smaller.

Some analysts have predicted a rate hike in the first quarter of next year but the majority see no change in rates until the second quarter of 2010, a Reuters poll showed on Monday.

* PROBABILITY: High.

* MARKET REACTION: This outcome is unlikely to push up peso bond yields as the market does not expect a slight upward adjustment in inflation forecasts to have a big impact on monetary policy in the near-term.

RATES KEPT UNCHANGED

Analysts unanimously predicted the central bank will keep its overnight borrowing and lending rates where they have been since July -- at 4 percent and 6 percent, respectively -- with the economic recovery expected to be modest and benign inflation.

Despite an expected uptick in domestic consumer prices in coming months, the average inflation for the year is seen likely to fall within the government's target of 2.5-4.5 percent in 2009 and 3.5-5.5 percent in 2010, a Reuters poll showed in October.

The central bank is likely to reiterate monetary policy would remain supportive of growth despite a possible rise in prices after two typhoons destroyed food crops since late September.

* PROBABILITY: Very high.

* MARKET REACTION: Markets have fully priced in this outcome and will instead focus on the central banks comments on the economy and inflation for clues on where rates are headed. The general view is that rates will be on hold until at least the end of the year.