But the government is also likely to be keeping its eye on the peso, which is set to weaken further, thanks to slowing exports, analysts said.
BSP Governor Rafael Buenaventura called the inflation data "very good news," but hinted the government would slash its benchmark overnight rates only if the US did.
"That (inflation number) with a rate cut by the US Fed will give us room to cut rates...to what extent we will still have to decide," Buenaventura said.
The National Statistics Office (NSO) said October’s inflation was substantially lower than September’s 6.1 percent.
Although the slowdown in inflation rate was welcomed by government economic planners, businessmen and analysts pointed out that the caveat was that it also indicated an economy that was not growing as fast as it used to.
Bank of Philippine Islands economist Ces Tanchoco said the trend indicated that the BSP had room to cut rates. "The negative spin is that a lower inflation can be equated with slower consumer demand," she said.
The Federation of Philippine Industries (FPI), however, said the decline in inflation rate was in tandem with the slowing economy.
FPI chairman Raul Concepcion said it merely reflected slower economic activity and the lower demand from consumers.
National Treasurer Sergio Edeza, on the other hand, said the lower inflation rate should translate to lower interest rates but expressed dismay that yesterday’s Treasury bill auction forced government to reject all bids to prevent an uptick in rates.
The BSP’s overnight borrowing rate is currently at 8.75 percent and the lending rate at 11.0 percent. The last 25 basis point cut was on Oct. 5.
The US Federal Reserve’s rate-setting committee meets on Tuesday, with analysts expecting a cut of up to 50 basis points in its key federal funds rate.
"It does give the BSP room to maneuver," said Gene Frieda, emerging markets economist at Forecast in Singapore, adding that he saw a 25-basis-point cut in the Philippines if the Fed cut by 50 basis points.
Inflation has been dropping since it hit 6.8 percent in July as domestic demand weakened, food prices remained stable and the peso ended months of volatility in line with its export-sensitive Asian counterparts.
Consumer prices rose 6.1 percent in September and 6.3 percent in August, then fell in October to a level not seen since October last year.
"It’s more difficult to justify a postponement of a cut," said Emilio Neri, economist at Abacus Securities in Manila.
But a weakening balance of payments, putting pressure on the peso, was also likely to be a factor in any rates decision, Frieda said.
"Even if inflation is on the wane, the worsening balance of payments backdrop constrains the BSP’s (central bank’s) ability to ease policy," Frieda said in a note to clients.
The government borrows heavily for deficit financingmuch of its funds come from abroad.
Philippine government papers’ high yield is instrumental in attracting overseas funds, a key factor in financing the country’s widening budget deficit.
Lower rates could trigger capital outflows, weakening the peso and also driving up inflation, economists said.