The government expects growth to ease this year to between 5 percent and 6 percent from a three-decade peak of 7.6 percent in 2010, on slow state spending and weakening demand from the country's trading partners, the United States and Europe.

Growth is expected to be 5.5-6.5 percent in 2012, latest government estimates show.

"Our monetary policy is flexible," Amando Tetangco told a business forum. "The preemptive steps that we have undertaken should enable us to continue to support economic growth while keeping inflation in the target range."

"We need to be alert to the developments both domestic and international so that we can adopt the necessary policy, adjust policy as may be necessary," he said.

Manila earlier had a growth goal of 7-8 percent this year and the next, but officials have started referring to lower growth forecasts assumed in the budget for 2011 and 2012.

Economic planning Secretary Cayetano Paderanga said 7-8 percent growth was a medium-term target.

The central bank expects inflation to remain within the target of 3-5 percent this year and in 2012, but said there were upside risks from upticks in oil and other commodities.

Tetangco said last week inflation risks were moderating, and Asian economies need to boost domestic demand to insulate themselves from a renewed US downturn.

Banks have a lot of room to increase lending to support the domestic economy, Tetangco said on Friday, citing ample liquidity in the financial system.

"The BSP (Bangko Sentral ng Pilipinas) has always tried to encourage, time and again, banks as well as other intermediaries to make productive use of this liquidity," he said.

Commercial banks' loan portfolios have been on the rise, with lending net of reverse repurchase deals at 19.1 percent of total portfolio in July -- the highest in over two years -- from 11 percent in January.

The central bank believes lending may grow faster once infrastructure projects that Manila wants the private sector to take up come on stream.

Officials said state spending, particularly in public works projects, had started to accelerate in the second half. This should help boost growth in the second half, along with continued healthy remittances of more than $1.5 billion monthly from overseas Filipinos which drive consumption.

The government said it would use private-public partnerships not only in major infrastructure projects but also for delivery of social services, such as constructing school buildings and health centres.