MANILA (2ND UPDATE) - Philippine annual inflation quickened in January, as expected, but the central bank is likely to keep interest rates on hold in the near term as inflationary pressures stay manageable. 

Risks to inflation appeared broadly balanced, the central bank has said but it was closely watching strong capital inflows because they posed potential upside risks to its price outlook. 

The consumer price index in January rose 3.0 percent from a year earlier, the highest since October's 3.1 percent with slight increases in food costs. A Reuters poll had forecast January inflation at 3.0 percent. 

Core inflation, which strips out volatile food and energy prices, was 3.6 percent from a year earlier, matching the rate in October, while month-on-month inflation was 0.5 percent, accelerating from -0.1 percent in December. 

Despite the slight pick-up in consumer prices, the market believes the central bank may stand pat on its monetary policy for now with expectations average inflation this year will come in within the central bank's 3 to 5 percent target range. 

A rise in rates may come later this year, some analysts said. 

"Overall, inflation pressures will increase more than what is implied in the central bank's current forecast," said Euben Paracuelles, economist at Nomura in Singapore. 

"At some point they will start to sound a little bit more hawkish to try and contain the impact of rising headline and core inflation on inflation expectations."  

The Philippine economy's resilience amid the global downturn has attracted an influx of foreign funds, which have driven a nearly 11 percent rise in the stock market index so far this year, making it Asia's second best performing bourse after Vietnam. 

These flows have also led the peso to appreciate around 1 percent against the dollar after surging nearly 7 percent last year. 

The central bank, which kept its benchmark rate steady at a record low of 3.5 percent last month, has said it was ready to deploy more macroprudential measures, if needed, to deal with capital inflows and manage market volatilities. 

At its Jan. 24 policy meeting, the central bank trimmed its forecast for average inflation in 2013 to 3.0 percent from 3.1 percent but raised its 2014 forecast to 3.2 percent from 2.9 percent.