* Sees room for continuing easier monetary policy
* Inflation seen bottoming at around 1 percent in Q3
* Rise in oil prices not seen as significant risk (Adds reaction, context)
By Karen Lema and Raju Gopalakrishnan
MANILA, June 15 (Reuters) - The Philippines' central bank governor signalled a further rate cut on Monday, saying slowing inflation meant the authority, unlike some others in Asia, could keep to an easier monetary stance to support the weak economy.
In an interview, Amando Tetangco said rising oil prices did not pose a major inflation risk despite the economy's reliance on crude imports, adding a pause in rate cuts would be considered only when the economy showed clearer signs of turning around.
His remarks underline market expectations that the central bank will cut its overnight borrowing rate by 25 basis points to a record low of 4.0 percent in July. Some other central banks, including those in Malaysia, South Korea and Thailand, have stopped cutting rates for now, analysts say.
"Considering that the inflation outlook is favourable and that inflation expectations are well-anchored, we think there is room to consider further easing of monetary policy down the road," Tetangco said.
The remark echoed a well-used phrase by the Philippines central bank during five consecutive rate cuts totalling 1.75 percentage points since December.
Alongside Bank Indonesia, the Philippines central bank is one of the few monetary authorities in Asia still cutting rates following the shock waves of the global financial crisis.
Others are on hold after hefty rate cuts and some, including the Bank of Korea, are turning their attention to the risks of inflation partly in reaction to a rise in world oil prices, which late last week hit an eight-month high above $73 a barrel.
That has prompted markets to start pricing in a rise in policy rates, alarming some central bankers who fear higher market rates will undermine economic recovery.
"Bond yields are now posing the risk of undoing some of the monetary easing undertaken so far, so it may be that in view of recent bond market events, the BSP (central bank) is also sending out clearer signals on where it stands on monetary policy, and hence preferred yields direction and levels," said Vishnu Varathan, an economist at FORECAST Pte.
Philippines two-year government bond yields have jumped 60 basis points this month even though the central bank has signalled easier monetary policy.
Analysts say that reflects global market expectations that an unprecedented round of global rate cuts is coming to an end but, in the Philippines, also concerns of increased government debt supply to feed a record budget gap this year.
The economy shrank a seasonally adjusted 2.3 percent in the first quarter, its worst performance in two decades, which put pressure on the central bank to keep cutting rates, analysts say.
Indeed, Tetangco said the central bank would only consider pausing when the economy showed stronger signs of picking up.
The government slashed its 2009 economic growth forecast last week to 0.8-1.8 percent from 3.1-4.1 percent, while the International Monetary Fund was more downbeat, suggesting the economy would shrink this year by 1 percent.
"If signs of a turnaround in economic growth are clearer, then that is one sign that perhaps the easing cycle is about to end," the central bank governor said. "Another important consideration would be what the other countries are doing."
Asked how he would prevent a pause in cuts being used by markets to push up interest rates, he said: "Even if we are in an easing mode, we already have to think about an exit strategy.
"I think for this purpose what is crucial would be to make sure the shift is done smoothly, there is no sharp change or reversal of policy."
Tetangco said he expected annual inflation to bottom out in the third quarter at around 1 percent, despite rising oil costs.
"Oil prices do not yet pose significant risk to the inflation outlook at this time," he said.
"Inflation is now projected at 3.4 percent average for 2009, so this is well within the target range of 2.5 to 4.5 percent," he said. "You will notice, it is below the mid-point. That gives us flexibility to manage the change in policy stance when that will be required."
Tetangco said the central bank had seen a pick up in demand for its peso rediscount facility, which allows banks holding eligible instruments to tap short-term liquidity.
"If the trend continues, we would need to take a look at the appropriateness of the current budget which is 60 billion pesos ($1.24 billion)."
He said commercial banks were passing on only about one-third of the central bank's rate cuts, but added this was not unusual.
"Credit markets in a period like this do not operate in the usual manner and this, the partial pass-through of policy rate cuts, is something that is true not only in the Philippines but it has also been observed in other countries.
Therefore, he said, "in a period like this, one has to be more aggressive in terms of monetary policy actions."
"As conditions improve, the response of the banks to policy rate cuts will tend to be greater or stronger." ($1 = 48.2 pesos) (Editing by Neil Fullick)