July 5, 2018 / 3:34 PM / 10 months ago

UPDATE 1-Mexico cenbank warns it may hike rates again if outlook worsens

(Recasts with possibility of further hikes, adds policymaker comments)

MEXICO CITY, July 5 (Reuters) - All of the board members of Mexico’s central bank thought inflation could cool more slowly than expected due to recent shocks, and warned they may need to hike interest rates again if conditions worsen, according to minutes released on Thursday.

Banxico five board members voted unanimously to raise the country’s benchmark interest rate to a more than nine-year high of 7.75 percent on June 21, the final monetary policy meeting before leftist Andres Manuel Lopez Obrador resoundingly won last Sunday’s presidential election.

All members thought factors hitting inflation could affect the convergence to policymakers’ 3 percent target, the minutes from the meeting showed.

Most members thought the board needed to maintain a prudent policy stance and all members warned that monetary policy faced a more adverse scenario with greater uncertainty.

“All members agreed that, under a more adverse scenario, a monetary policy response is essential to prevent inflation expectations from de-anchoring,” the minutes read.

Board members highlighted the risks to inflation included further pressure on the peso by broad dollar strength as well as uncertainty around talks to revamp the North American Free Trade Agreement and Mexico’s elections.

The peso, which tumbled to a more than 1-1/2 year low last month, has gained back about 9 percent.

Markets priced in a victory by Lopez Obrador, who is pledging to increase social spending but stick to a budget surplus.

Most board members said there were risks of greater inflationary pressures from an “escalation of protectionist measures” due to U.S. trade policy.

Mexico’s annual inflation rate was 4.54 percent in the 12-months through early June, down from a 16-1/2 year high close to 7 percent late last year. (Reporting by Michael O’Boyle and Gabriel Stargardter; Editing by Jeffrey Benkoe)

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