Mexico inflation data supports rate-cut expectations

Recasts throughout

Feb 24 (Reuters) - Mexico's headline inflation ticked up in line with market forecasts in early February, but a slowdown in the core consumer price index should support expectations of another 50-basis-point interest rate cut by the central bank next month.

In Latin America's second-largest economy, 12-month inflation hit 3.74% in the first half of February, statistics agency INEGI said on Monday, up from 3.69% a month earlier but matching forecasts from economists polled by Reuters.

Inflation remains within the Bank of Mexico's 2% to 4% target range, which coupled with weakening economic activity has allowed policymakers to lower borrowing costs.

The bank earlier this month delivered a 50-basis-point cut, bringing its benchmark rate to 9.50%, and suggested it could cut the key rate by a similar level at future meetings.

The latest consumer price data support that view, economists say, especially as 12-month core inflation - which some consider more reliable as it strips out volatile food and energy prices - slowed to 3.63% from 3.72% in the previous month.

"Banxico is likely to press ahead with another 50bp cut at its meeting next month," Capital Economics' emerging markets economist Kimberley Sperrfechter said, noting the bank was "very dovish" at its latest meeting.

The key risk to the monetary easing cycle remains the trade tensions with top trading partner the United States, as U.S. President Donald Trump has threatened to slap across-the-board tariffs on Mexican goods.

Trump also introduced and then delayed for a month 25% tariffs on goods from Mexico and Canada, both of which are expected to intensify efforts this week to avoid the duties ahead of an early March deadline.

"If U.S. tariffs on imports from Mexico are introduced on March 4 and the peso falls sharply, we would expect Banxico to move to the sidelines and keep rates on hold," Sperrfechter said.

Andres Abadia of Pantheon Macroeconomics noted that the inflation report was positive and reinforced the central bank's dovish stance, forecasting another 50-basis-point cut on March 27. "Assuming no tariffs," he warned.