Philippine inflation unexpectedly slowed to a seven-month low in June, reinforcing expectations a week before a central bank review that the key policy rate will be held at a record low at least until the fourth quarter.

The Philippines, which imports nearly all its crude oil needs, had expected annual inflation to peak this year in June or July. But the euro zone debt crisis and concerns about recovery in the United States have softened global commodity prices, including crude oil.

The annual headline inflation rate was 3.9 percent in June, down from 4.3 percent in May and 4.4 percent in April.

It was the lowest inflation rate since November 2009.

Governor Amando Tetangco said the data was consistent with the central bank's recent cuts in its inflation forecasts for 2010 and 2011, ''and thus provides BSP (central bank) flexibility when we review the stance of monetary policy next week''.

The rate was below the median forecast in a Reuters poll of 4.3 percent, and at the bottom end of the central bank's forecast range of 3.8 to 4.7 percent. ''We might see steady policy rate for the entire third quarter,'' said Jun Neri, economist at the Bank of the Philippine Islands.

''We don't see anything in the horizon that could trigger a sharp (inflation) uptick. Especially with the debt problems in Europe, the prospect for global growth has become less optimistic compared to a few months back.''

After the data, the benchmark four-year bond hit a life low of 5.59 percent. It has been hovering at lifetime lows since last week.

While other countries in the region, such as Malaysia and Singapore, have tightened policy, the Philippines' key policy rate has been at a record low of 4.0 percent since last July. (Reuters)