The Philippine central bank is expected to hold key interest rates steady this week, a Reuters poll showed, but some economists said it may have to tighten policy later in the year if inflationary pressures persist.

Inflation in March accelerated to a 21-month high, driven by rising rice prices and energy costs, but all 11 economists polled by Reuters expected the central bank to keep its benchmark overnight rate steady at 5 percent at a meeting on Thursday.

Most analysts felt the central bank would keep rates unchanged until the second half of the year, to see how the economy fared, but some felt a tightening was then likely.

"In our view, this is not simply a supply-side driven price shock, but rampant demand stoked by excessively loose monetary policy, in the Philippines as elsewhere in Asia, is part of the explanation for rising food prices," said Frederic Neumann, an economist at HSBC.

"Monetary policy, in short, needs to be tightened."

The central bank kept the overnight rate steady at its March meeting but it closed three of its longer-term, high-yielding special deposit accounts (SDAs) and cut rates on the remaining shorter maturities in a bid to get banks to lend more.

Prior to that, the central bank had trimmed overnight rates by a quarter of a point at each of its four previous meetings.

The overnight borrowing rate is at 5 percent, the lowest since May 1992, while the lending rate is at 7 percent.

No change in the SDA terms is expected this time.

Taimur Baig, director for Asia economics at Deutsche Bank, expects the central bank may get into a tightening mood if inflation picks up sharply in the second quarter.

"If the first quarter comes out and we see growth still looking very good and we still see inflation looking pretty bad in the second quarter, then I would expect the central bank to look more hawkish," he said.

First-quarter gross domestic product data is due in late May or early June.

"Going forward, risks are for a tighter policy stance," IDEAglobal’s Radhika Rao said. "Proposed wage hikes and increases in transport fares threaten to intensify demand-side pressures, spurring further upside in the core reading."

To help achieve economic growth of 6.3-7 percent this year, inflation must be kept at 3-5 percent, the government has said.

Inflation last year averaged 2.8 percent, the lowest since 1986, partly due to a 19 percent rise in the peso against the dollar, which countered imported inflation. But annual inflation hit 6.4 percent in March due to a surge in rice prices

Central bank governor Amando Tetangco has said consumer prices could keep climbing into the second half, potentially threatening the inflation target for the year. - Reuters