Mexico's inflation accelerates, rate cut unlikely in May

(Reuters) -Mexico's consumer prices unexpectedly rose in the first half of April, national statistics agency INEGI said on Wednesday, reinforcing bets that the country's central bank will hold its benchmark interest rate at its next policy meeting.

Inflation for the period was 0.09%, while economists polled by Reuters expected a price decrease of 0.03%.

The monthly reading took annual inflation in Latin America's second-largest economy to 4.63%, up from 4.48% a month earlier. It also came in above the expected 4.48% and the Bank of Mexico's target of 3%, plus or minus 1 percentage point.

Mexico's central bank lowered its benchmark rate in March by 25 basis points to 11%, but its governing board will likely hold it there for longer than markets expect, Deputy Governor Jonathan Heath told Reuters last week.

He called for "more persistent" monetary policy given sticky inflation, echoing other members of the board.

The inflation data, Capital Economics economist Kimberley Sperrfechter said, put the "final nail in the coffin" for a May rate cut, coupled with the shift in monetary easing expectations in the U.S. and the recent fall in Mexico's peso currency.

"If anything, the latest developments call into question whether it will cut at the bank's subsequent meeting in June," she added.

The closely watched core price index, which strips out some volatile food and energy prices, climbed 0.16% in the first two weeks of April and 4.39% in the 12-month period, meeting market expectations.

Annual core inflation declined from 4.69% in early March, a trend that Pantheon Macroeconomics economist Andres Abadia said would typically encourage rate cuts if it weren't for challenges such as relatively sticky services inflation and global uncertainties affecting the Mexican peso.

"As a result, we expect policymakers to maintain the current interest rate next month," he said.

(Reporting by Ricardo Figueroa and Peter Frontini; editing by Gabriel Araujo and Barbara Lewis)