By Natalia Siniawski

(Reuters) -Mexico’s headline inflation rate eased more than expected in December, fueling bets that the central bank will keep cutting its benchmark interest rate despite an uptick in the core consumer price index.

Annual headline inflation in Latin America’s second-largest economy hit 4.21% last month, INEGI data showed, below the 4.28% expected by economists in a Reuters poll and down from the November figure of 4.55%.

“Good news,” central bank board member Jonathan Heath wrote in a post on X, “since this is the first time (inflation) comes below the 4.26% logged in October 2023.”

Meanwhile the closely watched core consumer price index, which excludes volatile energy and food prices, accelerated to 3.65% in the 12 months through December from 3.58% the previous month. Economists expected it to come in at 3.62%.

Andres Abadia, chief Latin America economist at Pantheon Macroeconomics, said the uptick in core inflation appears temporary and pointed to a drop in non-core inflation, helped by falling food prices due to favorable weather, as a key factor driving the headline decline.

Last month the Mexican central bank delivered a 25-basis-point cut to its benchmark interest rate, its fifth in 2024, bringing the rate down to 10.00%.

Minutes from the meeting, released later on Thursday, showed most board members were open to considering larger rate cuts going forward.

But December’s inflation data could diminish that prospect, analysts warned.

“The report supports another 25-basis-point rate cut in February but cautioned that sticky core services inflation and external risks, such as U.S. policy uncertainty, may lead Banxico to remain cautious in accelerating rate cuts,” said Kimberley Sperrfechter, emerging markets economist at Capital Economics.