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UPDATE 1-Mexico central bank holds rate, eyes need to cut
* Mexico holds rates at 4.5 percent, as expected
* Policymakers say may cut rates if global economy weakens
MEXICO CITY Oct 14 (Reuters) - Mexico's central bank left interest rates unchanged on Friday but said economic conditions "could mean it will be appropriate to ease monetary policy" in future.
The bank kept benchmark credit costs steady at 4.5 percent, in line with majority expectations. The central bank said the the domestic economy was slowing and that on balance inflation risks had improved. Moreover, a recent steep slump in the peso had not pushed up expectations for consumer prices.
"(We) remain attentive to the outlook for global economic growth and its possible implications for the Mexican economy, which, in a context of very easy monetary policy in major advanced countries, could mean it will be appropriate to ease monetary policy in the end," policymakers said in a statement.
Bond yields fell after the statement as markets priced in a bigger chance of interest rate cuts in the future.
However, the central bank did say it was watching for any pressure on inflation due to the peso's losses, which could offset arguments for easing.
Sixteen of 21 analysts in a Reuters poll last week forecast the Banco de Mexico would leave rates on hold given low inflation and the weaker peso , which helps to loosen monetary conditions and support growth.
Benchmark credit costs in Latin America's second-largest economy have been unchanged since July 2009, when the central bank cut rates by 25 basis points.
Still, five analysts had tipped a cut after policymakers opened the door to easing at their last rate decision in August and the majority think that the central bank's next move will be to loosen policy.
The Banco de Mexico said after its last meeting it would ease if global market turmoil and the performance of the domestic economy demanded a response, but has given no signal on the timing of such a move.
Mexico is struggling to recover from a deep recession in 2009 and its prospects are souring due to weakness in the United States.
Consumer confidence fell more than unexpected in September, a sign of the weak domestic demand which keeps Mexico reliant on U.S. exports, and economists have scaled back expectations for economic growth this year and next.
Brazil, the region's biggest economy, cut rates by 50 basis point cut in late August and is expected to cut again next week, despite rampant inflation.
In Mexico, inflation is easing amid slower growth. Since policymakers last met, inflation has fallen to 3.1 percent from 3.5 percent -- nearing the central bank's 3 percent target and giving it more room to loosen the policy reins.
Still, an 8 percent fall in the peso has helped to loosen monetary conditions and support growth and economists say this means the central bank will be in no rush to cut.
A weaker peso boosts growth by making Mexico's exports cheaper although some economists are concerned it could also push up inflation via the prices of imported goods.
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