The Bangko Sentral ng Pilipinas (BSP) said it will consider raising interest rates in the coming months as it boosts inflation forecasts amid an economic recovery. Bonds and the peso dropped.

BSP pared a lending program for banks by reducing the budget for its so-called rediscounting facility to P20 billion from P40 billion, effective May 3, it said Friday. Policy makers kept the benchmark interest rate at a record-low 4 percent.

The Philippines will on May 10 elect a new president, who may face pressure to increase wages and transport fares, adding to inflation risks. The International Monetary Fund said this week planning exits from stimulus measures must be a “policy priority” for Asian economies given the strength of the region’s rebound from the global recession.

“The central bank is on its way to phasing out all support mechanisms introduced to fight the global crisis,” said Roland Avante, treasurer at Sterling Bank of Asia in Manila. “All their actions and statements are consistent toward an interest- rate increase.”

The yield on the 7 percent bond due January 2016 rose five basis points to 6.95 percent Friday morning in Manila, the highest level since March 23, according to Amstel Financial Services. The Philippine peso snapped three days of gains, falling 0.3 percent to 44.45 per dollar Friday morning, according to Tullett Prebon Plc.

Possible Increase

“Interest-rate policy action is on the table in the next meetings,” Assistant Governor Cyd Amador told reporters in Manila after the central bank policy decision Friday. A rate increase is “possible,” she said, without giving a time frame.

The two leading presidential candidates in voter surveys, Senators Manuel Villar and Benigno “Noynoy” Aquino, have pledged to reduce poverty in a nation where one in four Filipinos live on less  than $1.25 a day.

Inflation in the Philippines accelerated to a three-month high in March, with consumer prices rising 4.4 percent from a year earlier. The central bank Friday raised its inflation forecasts for this year and next, saying the “balance of risk” to inflation is “tilted” to the upside.

The Philippine currency climbed to its strongest level in 20 months last week, reaching 44.30 per dollar, as Asia’s rebound attracts funds to the region. The country’s benchmark stock index has risen more than 50 percent in the past year.

India raised interest rates for the second time in a month on April 20, joining Malaysia and Australia in increasing borrowing costs in recent weeks.

“The central bank is preparing the market for the possibility of an interest-rate hike, maybe as early as this quarter,” said Marcelo Ayes, a senior vice president at Rizal Commercial Banking Corp. in Manila.

“Growth will generate inflationary pressures and you don’t want to be accused of being behind the curve.”

Philippine growth accelerated to a one-year high of 1.8 percent in the final quarter of 2009 from a decade-low 0.4 percent in the previous three months, boosting demand for Ayala Land Inc.’s homes and Bank of the Philippine Islands’ loans.

The first-quarter economic performance will be “important at the next policy meeting,” Amador said.

The Philippines will release gross domestic product data for the three months through March in May.

Growth Forecast

The government forecasts the economy will expand 2.6 percent to 3.6 percent in 2010, as President Gloria Arroyo, whose nine-year rule ends this June, increases outlays on airports, bridges and state programs to a record 1.54 trillion pesos this year to bolster growth.

The Southeast Asian nation has so far limited its monetary stimulus withdrawal to adjustments in the rediscounting facility, which allows lenders to borrow from the central bank using loans as collateral.

The central bank’s “disengagement” from crisis measures will continue as “economic conditions steadily show signs of improvement and as financial markets have remained stable,” it said Friday. “I am cautiously optimistic that the self- sustaining nature of domestic activity is becoming more evident,” Amador said.