This is now closer to the revised inter-agency Development Budget Coordinating Committee (DBCC) gross domestic product (GDP) assumption of 6-6.7 percent for 2008 from 6.3-7 percent previous forecast. The BSP released this GDP assumption in February.

In its latest quarterly inflation report (first quarter), the BSP said it is maintaining this GDP projection despite revising inflation forecast, which is yet to be approved in the DBCC.

The central bank also assumes international crude oil prices will average $ 93.29 per barrel for 2008 and $ 93.04 per barrel for 2009.

The inflation target also assumes that headline overnight lending rates will average at five percent from December 2008 to December 2009 and that the 91-day Treasury bill rate will average lower at 3.8 percent for 2008 and 4.1 percent for 2009.

In maintaining its GDP forecast, BSP also believes that the National Government will be able to balance the budget this year, and sustain the zero-deficit budget position in 2009.

In its inflation report, the BSP said the balance of demand and supply conditions, as captured by the output gap (or the difference between actual and potential output) provides an indication of potential inflationary pressures in the near term.

"Inflation tends to rise (or fall) when demand for goods and services exert pressure on the economy’s ability to produce goods and services [or example] when the output gap is positive (negative)," said the BSP.

Based on the revised GDP data, preliminary estimates yielded an output gap of 4.2 percent in the last quarter of 2007, BSP noted.

"It represents an increase from the 3.6 percent reading in the third quarter 2007. The rise in the output gap amid the record high expansion in output in the fourth quarter could indicate possible demand pressures that may contribute to higher inflation," the central bank said.