Nov. 28 (Bloomberg) -- Mexico’s central bank kept its benchmark interest rate unchanged today while signaling increased concerns about economic growth in the midst of the global financial crisis.

The bank’s five-member board, led by Governor Guillermo Ortiz, left the key lending rate at 8.25 percent, matching forecasts by 20 of 23 economists surveyed by Bloomberg. Three others had predicted a reduction.

Policy makers said the global financial crisis intensified and the risk of slower growth in Mexico increased. That concern, along with the bank’s comment that inflation will slow to within its forecasts in 2009, increase the chances of a rate cut in January, said Gabriel Casillas, an economist at Banco UBS Pactual.

“They’re more dovish,” Casillas, who is based in Mexico City, said in a telephone interview. “There’s a lot more weight on concerns about the economy.”

Exports, consumer demand, job growth and wages indicate that the global financial crisis is having a greater impact on Mexico’s growth, the bank said in a statement. Policy makers didn’t mention wages as a risk to slower growth in last month’s statement, suggesting they are now more concerned, Casillas said.

“Warnings about a strong recession in industrialized countries, especially in the U.S., are having a negative impact on economic activity in Mexico,” a bank statement said.

Inflation

The bank couldn’t reduce the key lending rate to stoke a weak economy without the risk of spurring inflation, already at the highest in seven years in the first half of November, said Ricardo Aguilar, an economist at Invex Casa de Bolsa SA.

“We expect inflation to slow before the bank can lower rates,” said Aguilar, who is based in Mexico City.

Consumer prices rose more than forecast in the first half of November, pushing the annual inflation rate above the central bank’s forecast of 6 percent for the quarter, on higher costs for electricity and food. Annual inflation was 6.18 percent.

Inflation is quickening this quarter due to energy costs and may be “exacerbated by the recent depreciation in the exchange rate and the increases in fruit and vegetable prices,” the bank said.

The bank forecasts annual inflation of no more than 5.75 percent next quarter, no more than 5 percent in the second quarter of next year, and no more than 4.25 percent in the third quarter of next year. Policy makers target inflation at 3 percent in 2010.

Peso

Retailers may be forced to start charging more for imported goods because of the peso’s 18 percent decline versus the U.S. dollar since Oct. 1. The central bank has sold $14.4 billion worth of U.S. dollars in the past two months and bought pesos in a bid to stem the rout in the currency.

The peso weakened after the bank citied the risks to growth, falling 0.9 percent to 13.3171 per U.S. dollar at 11:36 a.m. New York time, from 13.2039 yesterday.

Policy makers want to make sure the peso’s decline won’t fuel inflation before cutting borrowing costs to stoke the economy, said Alonso Cervera, an economist with Credit Suisse Group AG in New York.

“The bank can’t start lowering rates when inflation is at the highest level in years,” Cervera said in an interview with Bloomberg Television.

Economists surveyed Nov. 20 by Citigroup Inc.’s Banamex unit predicted the central bank will reduce the key lending rate by 1.25 percentage points by the end of next year.

Mexico’s economy

Yields on Mexico’s 10 percent bond due December 2024 fell three basis points, or 0.03 percentage point, to 9.11 percent, according to Banco Santander SA. The yield on the most-traded security has dropped 63 basis points this week. The bond’s price today rose 0.22 centavo to 107.46 centavos per peso.

Mexico’s economy expanded more than forecast in the third quarter as growth in the services industry offset falling industrial production. Gross domestic product, the broadest measure of a country’s output of goods and services, grew 1.6 percent from a year earlier.

Still, that compares with growth of 2.7 percent in the second quarter, 2.6 percent in the first quarter and 4.2 percent at the end of 2007.

The government has also expressed concern about the economy. On Oct. 9, President Felipe Calderon sent a revised 2009 budget proposal to Congress that lowered forecasts for growth next year to 1.8 percent from 3 percent.

Merrill Lynch & Co. and Credit Suisse Group AG this week reduced their estimates for Mexico’s economic growth next year to 0.4 percent and 0.6 percent, saying the slump in the U.S. will sap demand for Mexican exports. BNP Paribas forecasts the economy will contract 0.8 percent next year.

To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net.

Last Updated: November 28, 2008 11:38 EST