* Minutes show members see need for vigilance on inflation
* Policymakers see risk of inflation in short term
* Majority see marginal increase in short-term growth risks
By Krista Hughes and Alexandra Alper
MEXICO CITY, Dec 14 A warning by Mexico's
central bank that it might raise interest rates if inflation
pressures increase again reflects only a majority view on the
five-member board, the minutes of policymakers' discussion
showed on Friday.
All five members of the Banco de Mexico's monetary policy
board agreed the bank needed to remain vigilant about inflation
after deciding unanimously to keep interest rates steady at 4.5
percent at their meeting two weeks ago.
But it appeared the board was not unanimous on the possible
need for future increases, as the minutes referred to this
section as a majority view, compared with a view held by all at
the previous meeting in October.
"The majority stressed that despite the recent decline in
inflation, the board must be careful to avoid risks of
contamination of prices and, if the downward trend does not
continue, it would be prudent to adjust the monetary stance to
ensure this convergence," the minutes said.
The division backs the view of traders and analysts that the
central bank is unlikely to raise interest rates until mid-2014,
given increasing concern about risks to growth.
"There's really no reason to keep this neutral to hawkish
tone; that line 'if inflation picks up, we will hike,' that has
less punch for me," said Benito Berber, an economist at Nomura
in New York.
Inflation in Latin America's no. 2 economy has been easing
since it touched a 2-1/2 year high of 4.77 percent in September
after an outbreak of avian flu and bad weather pushed up the
price of eggs, chickens and crops.
The majority of members said they see inflation decreasing
by the end of the year to 4 percent, the central bank's ceiling
that has been breached for six months running.
But most expressed concern that risk aversion, prompted in
part by a weak global economy, could push up the peso exchange
rate versus the dollar, weakening the currency and threatening
the downward trend in inflation.
One member highlighted inflation risk from a possible
cut-back in government gas subsidies, which analysts at Banorte
estimate would cost $13 billion for 2012, according to Banorte.
The Ministry of Finance under new President Enrique Pena
Nieto is projecting a $1.3 billion subsidy for 2013, which could
signal a fuel price rise, Banorte said.
"We believe this is going to be something to pay close
attention to, particularly in terms of its impact on CPI
inflation," Banorte said, referring to the consumer price index.
GROWTH RISKS EDGE UP
Inflation concerns were offset by a slight increase in risks
to growth, the minutes said.
A majority of central bank board members said the downside
risks for Mexican growth had gone up marginally in the
short-term, citing weakness in manufacturing exports.
Mexico has been supported by U.S. demand for local exports,
which has lowered unemployment and raised domestic demand, even
as a global slowdown weighed heavily on regional rivals such as
Brazil, which grew less than Mexico last year. But Mexican
growth started to slow in the second half of the year, as demand
for Mexican products abroad eased.
"The latest minutes confirm our view that it is less
concerned about inflation and more worried about economic
performance," Barclays said in a client note.
Data out on Friday also showed that private spending
rose 1.0 percent during the July-September period
from the second quarter, the national statistics agency said.
Private spending was 2.2 percent higher than in the same
period a year earlier, according to the data, while
aggregate demand increased 0.7 percent from the second quarter
. It was up 2.6 percent from the same quarter in