Mexico's inflation meets forecasts in February; more rate cuts expected

March 7 (Reuters) - Mexico's annual inflation ticked up in February but met market expectations and remained within the central bank's target range, official data showed on Friday, likely leaving the door open for policymakers to keep lowering interest rates.

Consumer prices in Latin America's second-largest economy were up 3.77% in the 12 months through February, statistics agency INEGI said, up from 3.59% in the previous month but still within the Bank of Mexico's 2% to 4% tolerance band.

An improving inflation environment and slowing economic activity have allowed Banxico, as the central bank is known, to drive a monetary easing cycle.

The bank last month delivered a 50-basis-point cut to its benchmark rate after five quarter-point reductions last year, bringing it to 9.5%, and said it could consider similar adjustments in the future.

The latest inflation data, which came in line with market estimates in a Reuters poll, reinforced expectations of a cut of the same size on March 27, when policymakers are scheduled to announce their next decision.

"The rise in Mexico's headline inflation rate in February was entirely driven by non-core inflation and therefore won't be a major concern for the central bank," Kimberley Sperrfechter of Capital Economics said in a note to clients.

"Indeed, we think that the weakness in the economy means that Banxico is likely to deliver another 50bp cut."

Mexico's 12-month core inflation index, often seen as a more reliable measure of price trends as it excludes volatile energy and food prices, came in at 3.65% in February, INEGI said. Markets expected 3.62%.

In the month alone, headline prices were up 0.28%, whereas core prices rose 0.48%.

Forecasts of fresh rate cuts were also supported by U.S. President Donald Trump's decision to suspend tariffs of 25% he had imposed this week on most goods from Canada and Mexico, which were seen as a key risk to Banxico's easing cycle.