Mexico central bank seen holding interest rate at record low

MEXICO CITY, July 11 Fri Jul 11, 2014 1:01am EDT

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MEXICO CITY, July 11 (Reuters) - Mexico's central bank is seen holding interest rates steady on Friday at a record low to support a nascent recovery in Latin America's second-largest economy after a surprise rate cut last month.

All 24 analysts surveyed by Reuters expect the central bank to hold its main interest rate at 3.00 percent on Friday after policymakers caught markets off guard by lowering borrowing costs by 50 basis points in June.

In the divided decision, board members cited greater slack in the economy, but said they did not think further cuts were advisable.

On Friday, policymakers could highlight an improvement in the most recent economic data, while still pointing to economic headwinds that will keep consumer price pressures contained.

"The fact that the central bank said it did not consider another cut to be advisable, combined with the slack in the economy, leads us to expect a monetary pause for the rest of the year," BBVA Bancomer said in a client note on Thursday.

Mexico's economy grew only 0.3 percent in the first quarter compared with the last three months of 2013, pushing the central bank to lower its growth forecast for the year to a range of 2.3 percent to 3.3 percent from 3 percent to 4 percent.

Central Bank Governor Agustin Carstens said last month that the bank could lower its 2014 growth estimate again this year after the weak first quarter numbers.

Data last month showed the economy expanded in April at its fastest pace since November 2012 on strength in the services sector.

But sales at stores open at least a year dipped in June, highlighting Mexicans' continued reluctance to spend.

The median forecast of analysts surveyed by Reuters is for the central bank to raise its benchmark rate 25 basis points in the second quarter of 2015, on par with a prior poll.

Mexico's annual inflation rate ticked up in June to a three-month high of 3.75 percent, but remained below the central bank's 4 percent ceiling.

Policymakers have said they expect temporary factors to drive the annual rate above 4 percent in the second half of the year, but that the rate should fall back toward 3 percent by early next year. (Reporting by Alexandra Alper; Editing by Mohammad Zargham)

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