FILE PHOTO: The logo of Mexico's Central Bank (Banco de Mexico) is seen at its building in downtown Mexico City, Mexico April 24, 2024. REUTERS/Henry Romero/File photo

(Reuters) -Mexico's headline inflation slowed in July to its lowest level since late 2020, but the closely-watched core rate remained above the central bank's official target, data from national statistics agency INEGI showed on Thursday.

The figures were released ahead of the Bank of Mexico (Banxico)'s announcement later in the day of its next interest rate decision. Markets were widely expecting the bank to slow down the pace of monetary easing in Latin America's second-largest economy.

Annual inflation in July hit 3.51%, INEGI said, down from 4.32% a month earlier, marking the lowest reading since December 2020. Economists polled by Reuters had expected it to come in at 3.53%.

Core inflation, meanwhile, stood at 4.23%, slightly below June's 4.24% and in line with market forecasts.

The core index, seen as a better parameter for measuring price trends as it strips out some volatile food and energy prices, remained above the central bank's inflation target of 3%, plus or minus a percentage point.

The bank in June lowered its benchmark rate by half a percentage point for the fourth consecutive time to 8%, but the decision by the five-member board was not unanimous, as Deputy Governor Jonathan Heath voted to leave the rate unchanged.

According to the minutes from that meeting, all four officials who backed the cut said the board may adopt a more gradual approach in future decisions.

The latest inflation data "paves the way for Banxico to deliver the clearly-signaled 25-basis-point cut, to 7.75%," said Capital Economics emerging markets economist Kimberley Sperrfechter.

In July alone, consumer prices in Mexico rose 0.27%, according to non-seasonally adjusted figures. The core index rose 0.31% during the month. Both were in line with market expectations.

(Reporting by Gabriel Araujo, Ricardo Figueroa and Benjamín Mejías ValenciaEditing by Frances Kerry)