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UPDATE 2-Bank of Mexico hikes rates to record 9.25%, signals more hikes possible

(Adds comments from Banxico, analyst)

MEXICO CITY, Sept 29 (Reuters) - The Bank of Mexico hiked its key interest rate on Thursday by 75 basis points to a record 9.25%, in line with forecasts and following in the footsteps of the U.S. Federal Reserve's own recent three-quarter of a percentage point increase.

The bank's five board members voted unanimously for the third consecutive hike of this magnitude as inflation remains above a two-decade high.

Banxico, as Mexico's central bank is called, said its board "will assess the magnitude of the upward adjustments in the reference rate for its next policy decisions based on the prevailing conditions."

The bank has now raised its target rate by 525 basis points this current hiking cycle, which began in June 2021, as inflation has blown past the bank's target rate of 3%, plus or minus one percentage point.

Despite Banxico's monetary tightening, inflation in Mexico has continued to rise to decades-high levels. Annual inflation in Latin America's second-largest economy hit 8.76% in the first half of September, official data showed last week.

"We anticipate Banxico will continue its policy tightening to avoid further de-anchoring of inflation expectations against a backdrop of stubbornly high inflation," said Carlos Morales, sovereign director at Fitch Ratings, who projected the policy rate will reach 10% by year end.

Banxico said the balance of risks to inflation's trajectory remains biased significantly to the upside and forecast average annual inflation of 8.6% for the fourth quarter.

It added that the rate of growth of economic activity during the third quarter is expected to slow down relative to the first half of the year, although slack conditions are expected to continue decreasing.

The Mexican central bank said an environment of uncertainty prevails, while the balance of risks for economic activity remains biased to the downside.

Last week, the Fed announced its third-straight hike of 75 basis points, and signaled more increases of the same size may well be needed. (Reporting by Anthony Esposito and Brendan O'Boyle Editing by Alistair Bell and Diane Craft)