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J.P. Moczulski/Reuters/J.P. Moczulski/Reuters

Mexico's central bank held its benchmark interest rate steady on Friday as it eyed a spike in inflation, but it noted a growing risk of a global downturn, suggesting policy makers may not raise rates even if consumer prices climb higher.

The Banco de Mexico kept its benchmark interest rate at 4.5 per cent, in line with analysts' expectations. It stuck to its outlook from June that it would closely watch inflation factors.

Mexico cut rates following the credit crisis in late 2008 to counter a deep recession but has kept its key rate steady for the last three years.

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Solid U.S. demand for Mexican exports has shielded the local economy from a global slowdown that has pushed Brazil to slash interest rates to a record low. Analysts said Mexico was not likely to move rates this year.

Although the economy is holding up, unemployment remains well above levels reached before the 2008-09 global financial crisis. A separate report on Friday showed Mexico's seasonally adjusted jobless rate stayed just below 5 per cent.

Yields on Mexican interest rate swaps dipped after the central bank statement as the market increased bets on the chance for an interest rate cut in 2013.

Annual inflation in Mexico accelerated to its highest rate in 1-1/2 years in June, above the central bank's 4 per cent limit. Policy makers said short-term risks to consumer prices had risen due to a spike in agricultural prices.

"However, it is considered that in the medium-term the risks (to inflation) on the downside have intensified due to a greater possibility of a severe weakening of the global economy," the central bank said, also noting the risks to growth had risen.

Inflation in July is expected to stay above the central bank's comfort zone due to higher agricultural prices and the impact of a bird flu outbreak in western Mexico.

But the central bank said the effect would be "transitory" and economists said policy makers are unlikely to raise interest rates due to temporary factors.

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"There is no reason to think that Banxico could move interest rates higher or lower in the short term," said Luis Rodriguez, head of analysis at Mexican brokerage Finamex.

The central bank said the economy was still expanding and the output gap had closed, which suggests further growth could begin to pressure inflation. On Thursday, President Felipe Calderon said Mexico could grow by 4 per cent this year.

That compares with growth of 2 per cent in Brazil this year, according to a Reuters poll issued o n Thursday. The median of the poll showed analysts raised their estimate for Mexican growth in 2012 to 3.7 per cent from 3.5 per cent in an April poll.

Commenting on Mexico's currency, the central bank said the limited impact on core goods prices from a weak peso should not cause second round effects, such as higher wages, that could fuel inflation.

Mexican policy makers have worried that a weak peso could fan inflation since the currency blew past 12 per U.S. dollar last year. The market bet on a cut last year and again in April, but the central bank kept rates in check.

A weaker currency makes imported goods more expensive for domestic consumers in peso terms. The currency has recovered more than 9 per cent from a three-year low hit in early June to trade around 13.35 on Friday.

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Bank of America-Merrill Lynch analyst Carlos Capistran said in a note that if the peso firms past 12.70 per U.S. dollar, it would increase the chance of an interest rate cut.

"However, a deceleration in the United States that called for monetary policy easing there could weaken the peso and loosen Mexico's monetary conditions, once again preventing a cut," Mr. Capistran said in a note to clients.

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