Philippines' central bank says too early to talk about easing after February CPI

MANILA (Reuters) - The Philippine central bank said on Tuesday it may be too early to talk about easing monetary policy even as the headline inflation returned to its comfort range in February.

Annual inflation eased to a one-year low of 3.8 percent last month due to slower gains in food, fuel and utility prices, bringing the average inflation in the first two months to 4.1 percent.

"It may be premature to talk about a possible reduction in either the policy rate of the RRR (reserve requirement ratio) at this time considering that the year-to-date inflation remains above the target of 2-4 percent," central bank Deputy Governor Diwa Guinigundo told reporters.

Economists expect the central bank to unwind some of last year's tightening, with some saying it could start doing so as early as its meeting on March 21 given the improving inflation outlook.

February's inflation print was lower than the 4.0 percent economists had expected. January inflation was 4.4 percent, staying outside the central bank's target range since March last year.

ING economist Nicholas Mapa said the central bank under newly-appointed Governor Benjamin Diokno could "think about easing off the brakes and look to help support the growth side of the equation."

The Philippine peso weakened 0.6 percent to 52.04 against the U.S. dollar after the data was released, while the stock market index rose as much as 0.8 percent.

The Philippine central bank has said inflation will return to its comfort range this year, with fuel prices expected to ease further and as the government starts to lift caps on rice imports.

Full-year inflation projections by economists in a Reuters poll produced a median estimate of 3.3 percent, well inside the central bank's target, and much slower than last year's 5.2 percent average.

The central bank kept interest rates steady at its last two meetings and some economists expect policymakers to cut the rate on its overnight reverse repurchase facility and reduce banks' required reserves, currently at 18 percent, this year.

To tackle inflation, which rose to a near decade high of 6.7 percent in September and October, the central bank hiked rates five times last year, totalling 175 basis points.

(Reporting by Karen Lema and Neil Jerome Morales; editing by Darren Schuettler and Gopakumar Warrier)

By Karen Lema and Neil Jerome Morales