Bank of Mexico lowers key interest rate to 10.50% with single dissent
Key borrowing rate now at 10.50%, compared to 10.75% before
Deputy Governor Jonathan Heath voted to hold rate steady
Bank says inflation outlook demands restrictive policy
Core inflation rate at lowest level since early 2021
New throughout, adds background, details, bank comments, peso reaction and analyst comment
MEXICO CITY, Sept 26 (Reuters) -The Bank of Mexico lowered its benchmark interest rate by 25 basis points to 10.50% on Thursday, thesecond straight cut as price pressures have been easing inLatin America's No. 2 economy.
The bank struck a cautiously optimistic tone on the possibility of additional cuts to the key borrowing rate.
The latest rate cut approved bythe central bank's five-member governing board was not unanimous. Deputy Governor Jonathan Heath voted to hold the rate at 10.75%.
Analysts polled by Reuters had overwhelmingly forecast the 25-basis-point cut.
In a statement announcing its decision, Banxico, as the central bank is known, noted that the global inflation outlook has improved while the closely watched core inflation rate, considered a good indicator for price trends, is expected to keep decreasing.
"Looking ahead, the board expects that the inflationary environment will allow further reference rate adjustments," the statement said, emphasizing however that the outlook for inflation "still calls for a restrictive monetary policy stance."
Mexico's annualheadline inflation slowedto 4.66% in the first half of September, official data showed on Tuesday, its fourth consecutive fortnight of declines. Core inflation moderated to 3.95%, its lowest level since early 2021.
In August, Banxico also cut its benchmark interest rate by a quarter percentage point to settle at 10.75% in a divided decision, at the same time that it upwardly revised its year-end forecast for the rate of rising consumer prices.
Heath, along with fellow Deputy Governor Irene Espinosa, expressed concern at the time that cutting the interest rate before there was more certainty around the trajectory of inflation could hurt the bank's credibility.
On Thursday, Banxico revised its forecast for annual headline inflation in the fourth quarter slightly downward to 4.3%, from 4.4% previously, while also adjusting its expectation for core inflation to 3.8% from 3.9%.
Mexico's peso strengthened 0.4% immediately after Thursday's interest rate announcement but later was trading flat.
Following the rate decision, Fitch Ratings director Carlos Morales said the agency expects upward inflationary pressures on the peso to continue, driven by uncertainty around a slate of constitutional changes pursued by the government.
Still, Fitch expects inflation overall to continue on its downward path, as well as cheaper money going forward.
"We now anticipate further rate cuts in the latter part of the year, with subsequent cuts occurring throughout next year," Morales said.
Reporting by Brendan O'Boyle; Editing by Cassandra Garrison, David Alire Garcia and David Gregorio
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