UPDATE 3-Mexico central bank holds rates steady, may raise soon

* Central bank keeps main rate at 4.5 percent

* Could tighten soon if inflation persist

* Markets move to price in earlier rate rise

* Policymakers see higher risks to growth and inflation

MEXICO CITY, Oct 26 (Reuters) - Mexico's central bank said on Friday it could tighten monetary policy soon for the first time in four years if inflation persists and price pressures do not abate.

The Banco de Mexico left rates at 4.5 percent, where they have been since mid-2009, pointing to increased worries about growth and inflation, although it expected inflation had peaked at September's 2-1/2 year high.

``Nonetheless, if inflation shocks persist, even if you assume that they are temporary, and a change in the trend of headline and core inflation is not confirmed, the board estimates that it could be appropriate to adjust rates upwards soon,'' policymakers said in a statement.

The blunt warning raised the level of concern about inflation compared with the last meeting, when the central bank said it would keep a close eye on prices to see if a rate increase was warranted, but gave no time frame.

The Banco de Mexico has not raised interest rates since 2008 and the surprisingly tough stance pushed the peso into positive territory as markets moved to price in the chance of rates rising sooner than expected.

Just after the decision, interest rate swaps suggested a 25 basis point rise as soon as July 2013 compared with in early 2014 before the statement, but they shifted back to December 2013 in the afternoon.

Economists said they did not think the central bank would act on its threat, even though the statement was the most hawkish since Agustin Carstens took the helm of the central bank in January 2010.

``I think they are trying to manage expectations without resorting to a rate increase,'' said 4Cast economist Pedro Tuesta. ``Carstens has played it well, but he's not going to hike.''

Carstens himself said the strong words were justified by ``deep concern'' about the direction inflation and a feeling that price pressures might not abate with action.

``There are risk factors that are present and have increased and that might make it more difficult to bring down inflation without monetary policy instruments,'' he told reporters in Minneapolis, according to news agency Bloomberg.


Inflation in Latin America's second-largest economy has already started to ease from the 4.77 percent recorded in September and declined to 4.64 percent in the first half of October.

The Banco de Mexico, which has an inflation target of 3 percent, with a one percentage point tolerance band, said the recent rise in the peso, prompted by the U.S. Federal Reserve's third round of bond buying, should help cool Mexican inflation.

It expects inflation to keep easing in the coming months and be ``very close to 4 percent'' towards the end of the year, drifting towards 3 percent in 2013.

Nomura economist Benito Berber said the central bank was betting that slow growth and weakness in the United States, Mexico's main trading partner, meant policymakers would not have to act on the rate increase threat.

He said Carstens is shorting inflation in a way - ``'if inflation goes up, I hike.' I bet you that all his models indicate that inflation will not go up. Because I have very simple models that say the same.''

Slower growth is also expected to keep a lid on price pressures. Mexico's economy grew an average 4.3 percent in annual terms in the first half of the year, but the finance ministry is forecasting a more moderate expansion of 3.5 percent to 4.0 percent for the whole of 2012.

``The balance of risks for growth in the Mexican economy has continued to deteriorate, reflecting the intensifying downside risks to the global economy and in particular for the U.S. economy,'' the central bank said.

Data released earlier this week showed the economy's annual rate cooling to 3.51 percent in August, although the jobless rate fell to a pre-recession low the following month.

The central bank said one of its main inflation worries was a recent pick-up in salaries, where growth accelerated to close to 5 percent annually in September, and said that a return of financial market turbulence could not be ruled out.