Mexico's central bank seen keeping main interest rate unchanged

MEXICO CITY, June 6 Fri Jun 6, 2014 1:01am EDT

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MEXICO CITY, June 6 (Reuters) - Mexico's central bank is seen holding its main interest rate steady on Friday and policymakers may signal a readiness to lower borrowing costs if the economy weakens.

All 21 analysts surveyed last week by Reuters expect the central bank to hold its benchmark rate at a record low of 3.50 percent in a policy announcement set for 9 a.m. local time [1400 GMT].

Latin America's No. 2 economy only grew 0.3 percent in the first quarter compared to the last three months of 2013, pushing the government last month to cut back its expectations for annual growth in 2014 from 3.9 percent to 2.7 percent.

Economists expect the central bank, which has cut back its own growth forecast, will voice more concerns about the economy while arguing that inflation pressures remain tame.

"The bank will leave the door open to the possibility that there could be a cut if economic data deteriorates even more," said Alexis Milo, an economist at Deutsche Bank in Mexico City.

Milo expects economic data will show a stronger recovery in the coming months, however, eventually pushing any rate cut back off the table.

Annual inflation has been falling since it spiked above the central bank's 4 percent limit in January, largely due to new taxes on soft drinks and fast food. Fading price pressures give policymakers room to leave borrowing costs low.

Surprisingly weak growth in the first quarter has pushed economists to expect the central bank will wait longer before raising borrowing costs.

The median forecast of analysts surveyed by Reuters is for the central bank to raise its benchmark rate to 3.75 percent in the second quarter of 2015. That compared with previous projections for a hike in the first quarter. (Reporting by Michael O'Boyle; Editing by Tom Brown)

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