POLL-Mexico's inflation likely rebounded in the first half of January on higher taxes, tariffs

MEXICO CITY, Jan 20 (Reuters) - Mexico's annual inflation likely picked up in the first half of January, driven mainly by the implementation of new taxes and tariffs, a Reuters poll showed on Tuesday, fueling expectations that the central bank will pause interest rate cuts.

The median forecast from 18 participants projected the headline consumer price index to rise to 3.86% MXCPHI=ECI, following two consecutive fortnights of decline.

Core inflation, which excludes highly volatile products, was also estimated to have accelerated to 4.48% MXCPIC=ECI after moderating in the previous two fortnights.

At the beginning of the year, the government implemented a tax increase on products such as sugary drinks and cigarettes. It also raised import tariffs on goods from China and other, mostly Asian, countries with which Mexico does not have trade agreements.

Analysts also anticipated some pressure from a recent minimum wage hike.

The rebound in prices has strengthened expectations that the Bank of Mexico could pause its series of interest rate cuts at its next decision on February 5. This follows an extensive monetary easing cycle that began in early 2024, after the key rate had reached an all-time high of 11.25%.

Since then, the rate has been cut by 425 basis points (bps) to its current level of 7%.

Deputy Governor Jonathan Heath said in an interview last week that he believes the bank's governing board could vote to leave borrowing costs unchanged at its February meeting, which aligns with broad market expectations.

"We maintain our call for at least 50bp in rate cuts this year, although Banxico's recent communication suggests the Board may be creating leeway to pause in February if needed. The trajectory will depend heavily on January inflation data," said BBVA.