* Policymakers expected to leave key rate at 4.50 pct
* Weak peso could threaten inflation outlook
MEXICO CITY, June 9 Mexico's central bank is
expected to keep interest rates steady on Friday after it
recently raised its growth outlook and a slump in the peso
currency threatens to fan inflation higher.
Analysts polled by Reuters last week all said they expected
policymakers to keep benchmark interest rates on hold at 4.50
percent and the market is also betting on steady borrowing costs
Inflation is edging up towards the central bank's 4 percent
upper limit and analysts said a sharp fall in the peso last
month had likely unnerved policymakers who had looked earlier
this year to be leaning toward lowering borrowing costs.
The central bank has said an improvement in global markets -
code for a solid peso - is one precondition for a rate cut.
"At the last meeting, they almost made it a precondition for
a rate cut if there is financial stability," said Rafael de la
Fuente, an economist at UBS in New York.
"What we are looking for is any indication that they could
be more flexible in the conditions under which they are willing
to consider a cut," he said.
Since last year, Mexico's central bank has suggested it
could move to cut interest rates if the U.S. Federal Reserve
enacts a third round of large-scale bond buying.
Mexico slashed rates following the credit crisis in late
2008 to counter a deep recession, but has kept its key rate
steady since mid-2009.
The peso has fallen 8 percent since the central bank's last
policy meeting in April. Although it has bounced back from a
three-year low hit last week, analysts expect concerns about
Europe's debt troubles to keep it under pressure in coming
Mexico's economy started the year strongly, helped by demand
for its manufactured goods in the United States. The central
bank lifted its growth forecast for 2012 in May to a range of
from 3.25 percent to 4.25 percent.
The annual inflation rate rose to 3.85 percent in May. Core
services inflation is increasing, but this remains well below 3
percent and shows only a gradual acceleration in home-grown
Inflation is expected to rise in coming months but then to
fall back by the end of the year to 3.65 percent, according to a
monthly central bank poll of analysts carried out at the end of
May and published on June 1.
(Reporting by Michael O'Boyle and Krista Hughes; Editing by