Mexico cbank weighs if price spike needs policy shift -Carstens

MEXICO CITY Wed Jan 29, 2014 10:38am EST

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MEXICO CITY Jan 29 (Reuters) - Mexico's central bank is weighing whether monetary policy needs adjusting after annual inflation surged above its 4 percent tolerance ceiling, bank governor Agustin Carstens said in an interview disseminated on Wednesday.

Annual inflation in early January shot up to 4.63 percent, well above the central bank's limit of 4 percent. However, policymakers have argued the surge will be temporary since it is mostly due to the one-time impact of new taxes.

"We are going to have inflation above our range for some months," Carstens told Web site Arena Publica in a video interview posted on Wednesday.

"We are thinking, and it is an important issue which will be discussed at the monetary policy meeting ... about how long this increase will last, whether it will become generalized or whether it will require an adjustment in the monetary stance," Carstens said.

The central bank's board issues its next scheduled monetary policy statement on Friday. Analysts in a Reuters poll last week unananimously forecast the bank would keep its benchmark interest rate steady at 3.5 percent as policymakers look to support an economic recovery..

The central bank lowered borrowing costs in September and October after an economic contraction in the second quarter and policymakers have been expected to keep borrowing costs steady amid a tepid recovery in U.S. demand for Mexican exports.

Preliminary data shows some food prices are higher than they should be, Carstens said, suggesting that was unexpected.

Other factors stoking inflation were higher public transport prices and fiscal reform. The recently enacted reform raised value-added taxes on soft drinks and junk food.

He said he expected the food prices to correct during the year, while other prices linked to fiscal policy would correct within a year.

In the Reuters poll last week, the median of analysts surveyed projected the central bank will raise its benchmark rate to 3.75 percent in the first quarter of 2015, pushing back expectations for a hike in the second half of this year in the previous poll.

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