KEY interest rates will remain unchanged over the near term given the latest inflation conditions, the Bangko Sentral ng Pilipinas (BSP) said on Tuesday.

Inflation picked up to 3.4 percent last month from January's 2.8 percent, snapping a four-month decline but was significantly lower than the year-earlier 8.6 percent.

It fell within the 2.8- to 3.6-percent estimate of the Bangko Sentral ng Pilipinas (BSP) for the month and the 2.0- to 4.0-percent medium-term target, but was higher than the 3.0-percent median in a Manila Times poll of analysts.

"Looking ahead, the Monetary Board deems it appropriate to keep the BSP's monetary policy settings unchanged in the near term amid the improvement in inflation conditions," the central bank said in a statement.

"The BSP also continues to support the national government's nonmonetary measures to address supply-side pressures on prices and sustain the disinflation process," it added.

The February result was said to be in line with expectations that inflation would remain within target in the first quarter of 2024, primarily due to negative base effects.

It warned, however, that the rate could top 4.0 percent in the second quarter due to the adverse effects of the El Niño weather conditions on agricultural production and favorable base effects.

"The risks to the inflation outlook have receded but remain tilted toward the upside," the BSP said.

Potential increases in inflation forecasts are primarily associated with high transport and power rates, and increases in oil and food prices, it added.

The main downside risk, meanwhile, is the implementation of government measures to alleviate the impact of El Niño.

The BSP's forward guidance, former central bank deputy governor Diwa Guinigundo said, acknowledged the prevalence of upward risks to inflation.

Despite tight monetary policy, core inflation is expected to continue slowing, he added.

"We believe that BSP will remain steadfast and consistent with data-driven perspective — that it will avoid moving too fast in easing its current monetary stance unless the evidence is clear cut that the downtrend is fully established," Guinigundo said.

The BSP's benchmark rate currently stands at 6.5 percent, a 16-year-high, following 450 basis points of rate hikes since May 2022 after inflation started surging in the wake of Russia's invasion of Ukraine.

Guinigundo said the central bank was likely to take action only when forecasts for the next 12 to 18 months align with the official target.

The BSP is also expected to keep an eye on upcoming decisions of the US Federal Reserve to prevent the interest rate differential from deviating too much, aiming to avoid triggering capital outflows and a weakening of the peso.

"The BSP knew too well what needed to be done relative to its primary mandate of safeguarding low and stable inflation ... the results are showing now," Guinigundo noted.

"The economy has proved to be more resilient than everybody would like to believe even as the lingering effects of its past interest rate adjustments are yet to be fully felt," he added.

"It's always good for the BSP to be prepared for the dangers of some rosy scenarios."