* Annual inflation rises 4.25 pct, vs Reuters poll 4.19 pct
* Uptick in inflation limits central bank room to cut rates
* Peso firms to 20-month high after data
MEXICO CITY, April 9 The Mexican annual
inflation rate climbed above the central bank's target ceiling
in March, crimping policymakers' ability to lower borrowing
costs as the peso currency soared to 20-month highs.
Inflation in the twelve months through March
rose to 4.25 percent, the national statistics agency said on
Tuesday, above February's 3.55 percent increase and faster than
expectations for a 4.19 percent rise in a Reuters poll.
The brisk jump past the central bank's 4 percent limit for
inflation for the first time in four months raised the risk that
prices may not fall back toward 3 percent in the second half of
the year, as policymakers predicted.
"The shock on inflation so far has been pretty substantial,"
said Benito Berber, an analyst at Nomura in New York. "There is
more probability that it remains above 4 percent in the second
half of the year."
Mexico's peso firmed to its strongest level since August,
2011 after the data.
Mexico's central bank cut its benchmark interest rate to an
all-time low of 4 percent in early March in what was seen as a
bid to tamp down the appeal of the currency, but the peso has
kept gaining, up about 6 percent this year.
Further sharp gains in the peso could begin to hurt the
country's exporters, a key source of economic growth. But
policymakers will have little room to act until inflation
pressures cool, analysts said.
A further interest rate cut by the bank with inflation above
4 percent could risk hurting investor confidence in
policymakers' commitment to containing consumer price increases.
Meanwhile, the strong peso could help limit inflation
pressures by bringing down import costs, analysts said.
"In this context, while uncomfortable with the pace of
appreciation, the central bank could be willing to tolerate a
stronger currency," JPMorgan analyst Gabriel Lozano wrote in a
note, adding he expects the central bank to hold interest rates
steady all year.
However, others said the central bank could look to cut
interest rates again later this year if the peso keeps firming
and inflation falls back around 3.5 percent.
FRESH FOOD PRESSURES RISE
Consumer prices rose 0.73 percent in March, up
from 0.49 percent in February and above the 0.67 percent
expected in a Reuters poll.
A surge in volatile fruit and vegetable costs due to bad
weather drove much of the increase.
Inflation is expected to get a bump higher in April when the
national statistics institute introduces a new weighting.
Among the changes, analysts said, would be a lower weighting
to electricity costs. That will dampen the impact of summer
electricity subsidies, set to start in April, on the overall
measure of consumer prices and effectively drive prices higher.
The core price index, which strips out some
volatile food and energy prices, rose 0.30 percent, compared
with an expected 0.37 percent increase and a 0.51 percent rise