UPDATE 2-Philippine inflation hits 2-year high, limits room for more rate cuts

* Jan CPI up 4.2% vs 3.5% forecast in Reuters poll
* Inflation breaches c.bank's forecast for January
* Projected inflation uptrend is temporary -cbank governor

(Adds central bank governor's comments)
By Neil Jerome Morales and Enrico Dela Cruz
MANILA, Feb 5 (Reuters) - Philippine annual inflation
accelerated faster than expected to hit the highest level in two
years in January, limiting the central bank's room for further
interest rate cuts to support the pandemic-hit economy.
The Bangko Sentral ng Pilipinas (BSP), which has pursued an
accommodative monetary stance to help spur economic recovery,
said on Friday an inflation uptick in the first half should be
transitory. BSP holds its first 2021 policy meeting on Feb. 11.
The Consumer Price Index rose 4.2% in January from a year
earlier PHCPI=ECI , driven mainly by the heavily-weighted food
and non-alcoholic beverages index, the Philippine Statistics
Authority said on Friday.
Headline inflation, which was the highest since January
2019, beat the median forecast of 3.5% in a Reuters poll and was
outside BSP's projected range of 3.3%-4.1% for the month and the
full-year target of 2%-4%. Core inflation PHCPXY=ECI , which
excludes volatile food and fuel prices, was 3.4%, up from 3.3%
in December.
Central bank governor Benjamin Diokno told reporters a
projected uptrend in inflation should be "temporary".
"The sources of near-term inflation pressures are
supply-side shocks in nature that should not require a monetary
policy response unless they lead to further second-round
effects."
Inflation for food and non-alcoholic beverages was 6.2% in
January, at a time when pork prices soared due to a supply
crunch caused by African swine fever outbreaks.
"Cutting (the policy rate) is already out of the question in
the first half, maybe extending it in Q3," said Emilio Neri,
economist at Bank of the Philippine Islands, noting that a rate
hike was now also "a possibility".
The policy rate is currently at a record low of 2% following
cuts totalling 200 basis points last year, when the economy
suffered a record contraction.
"We expect BSP to refrain from adjusting policy in the near
term," said ING senior economist Nicholas Mapa, adding the next
move could be a rate hike though this was unlikely to happen in
2021 or even next year.