(Corrects to specify decrease not increase in 9th paragraph)
* Increasingly vocal rate cut camp
* Policymakers split on inflation outlook
* Open to hike rates if needed
By Krista Hughes
MEXICO CITY, March 30 An increasingly vocal camp within the Mexican central bank is pushing the case for lower interest rates, although a split in views seems likely to keep a cut off the table in the short term.
The minutes of the Banco de Mexico's March meeting showed several members arguing for the merits of cutting rates from the current 4.5 percent, given a downward trend in inflation.
"A majority of board members added that a downward adjustment to rates could be advisable if the current favorable conditions for the inflation outlook consolidate," the minutes said.
Some members of the board said there was room to achieve the bank's inflation goal with lower rate setting, which would be more favorable for the economy.
In the previous meeting, only one policymaker argued for rate cuts to be considered. Market bets on a hike in January 2013 receded as traders digested the minutes, which analysts said had a definite dovish tone.
But the minutes also made clear that a decision to cut, after more than 2-1/2 years on hold, would not be taken lightly. All five policymakers were unanimous in keeping rates unchanged in March.
At the meeting, some argued that more than a decade after adopting an inflation-targeting regime, the long-term inflation goal of 3 percent remained remote and any deviation from a conservative path risked sending the wrong message.
Inflation fell below the central bank's upper ceiling of 4 percent in February but remains above the target, and some policymakers disagreed with the majority view that the balance of price risks had improved.
"In fact, one board member said that he did not understand the urgency to d ecrease rates given that inflation has not yet fallen to 3 percent," the minutes said.
Summing up the debate on the future rate path, the minutes said all members agreed that timely moves were needed to head off any danger to the inflation target, but that any action could be "in either direction."
HIKE BETS MOVED BACK
Before the release of the minutes, interest rate swaps had priced in a 25-basis-point hike next January, but two hours later it was pushed back to December 2013.
"They are really dovish, they are just telling us they didn't cut because the global economy was too uncertain," said Pedro Tuesta, an analyst with 4Cast Inc. in Washington.
Banorte-IXE analyst Delia Paredes said she was sticking with her forecast of a hike in April 2013.
"Even if they are quite optimistic and positive about growth, in terms of how inflation will develop in the future I don't think there is much agreement among the board," she said.
"Given that, I think the central bank will not move for a while."
The minutes confirmed a more upbeat tone on the growth outlook from the last policy statement, with most policymakers saying the balance of growth risks had improved.
Latin America's No. 2 economy is still recovering from a deep recession in 2009 and the government expects growth to ease this year to about 3.5 percent, although signs of progress in resolving Europe's debt crisis and a recovery in the United States have bolstered hopes of a faster expansion.
Industrial output unexpectedly climbed for the third straight month in January as employment data from the United States, which absorbs nearly 80 percent of Mexican exports, has brightened.
A rise in the peso, up about 9 percent this year on strong capital inflows, was one factor helping to ease inflation pressures, the minutes showed. (Additional reporting by Jean Luis Arce and Rachel Uranga; Editing by Jeffrey Benkoe and Dan Grebler)