UPDATE 2-Mexico inflation cools in March, below central bank limit

miércoles 9 de abril de 2014 10:14 GYT

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MEXICO CITY, April 9 (Reuters) - Mexican inflation fell below the central bank's 4 percent limit in March, cooling a bit more than expected and backing bets for steady interest rates this year in Latin America's No. 2 economy.

Inflation in the 12 months through March was 3.76 percent, the national statistics institute said on Wednesday, compared to the 3.79 percent forecast in a Reuters poll and down from a 4.23 percent rate in February.

Tame prices will allow policymakers to keep interest rates at record lows to help fuel an economic recovery, contrasting with top regional economy Brazil, which has jacked up borrowing costs to fight a surge in inflation.

"This adds to the reasons to expect Mexico to outperform Brazil this year," Capital Economics wrote in a note.

Brazil's inflation rose at the fastest pace for March in 11 years, challenging the central bank's plan to stop raising interest rates soon.

Mexican annual inflation spiked had above 4 percent in January but has since cooled. Policymakers held their benchmark rate at 3.50 percent last month and pointed to slack in the economy that would help contain price pressures.

Yields on Mexican interest rate swaps were little changed as investors stuck to bets that eye steady borrowing costs until a hike in March next year.

Consumer prices rose 0.27 percent in March, compared to an expected 0.30 percent, while core prices, which strip out some volatile food and energy costs, rose 0.21 percent , versus an estimate of 0.19 percent.

Most of Mexico's central bankers think that the recent spike in inflation has passed, while a weak economy at the start of the year will push them to cut the 2014 growth outlook from a current forecast of between 3 percent and 4 percent, minutes from last month's meeting showed on Friday. (Reporting by Michael O'Boyle; Editing by Nick Zieminski)