July 25, 2014 / 2:35 PM / 3 years ago

UPDATE 2-Mexico central bankers divided on growth, inflation outlook

(Adds details on contrasting views and economist comment)

MEXICO CITY, July 25 (Reuters) - Mexico’s central bankers were divided over whether an economic recovery was gaining traction and a minority remained worried about inflation pressures a month after board members split over a decision to cut interest rates to a record low.

Central bank board members voted 5-0 at their July 11 meeting to hold their benchmark interest rate at 3 percent following June’s cut, minutes from the July meeting showed on Friday.

Despite the unanimous vote, two board members suggested that they were uncomfortable with the 3 percent rate, but they did not feel strong enough to vote against holding rates steady in July.

While the majority of the board agreed that the economy should pick up in the second half of the year, two of the five said they saw no improvement in the growth outlook since June.

The minutes offered no clear signal that the bank could cut rates further this year, and analysts said it would take a sharp economic downturn to spur another cut.

“There is a huge threshold to cut,” said Benito Berber, an economist at Nomura in New York.

Mexico’s economy barely grew in the first quarter as a harsh winter dragged on growth in the United States, Mexico’s top trading partner, while Mexican tax hikes hit domestic demand.

A majority of the board said consumption has showed recent signs of a slow recovery but investment remains lethargic.

The International Monetary Fund on Thursday cut its growth projection for Mexico this year to 2.4 percent from 3 percent, below the governments estimate for a 2.7 percent expansion.

Policymakers remained split on inflation, with the majority saying that the outlook remained favorable. Two others worried about faster consumer price gains.

A majority of policymakers said inflation would accelerated to levels near 4 percent in the second half of the year before finishing the year below that level.

Mexican annual inflation rose in early July to touch the central bank’s tolerance ceiling of 4 percent, surging to a five-month high.

The majority of the board said that the U.S. Federal Reserve could raise rates before the market expects and all agreed that uncertainty about the Fed’s actions could spark greater volatility in financial markets.

The central bank is not expected to hike interest rates until the United States moves to raise borrowing costs, and analysts currently project Mexico could start hiking around July next year. (Reporting by Alexandra Alper and Michael O‘Boyle; Editing by W Simon)

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