MEXICO CITY – Mexico should consider cutting interest rates to ease the effects of a growing financial crisis on the local economy said the country's Finance Minister Thursday, Mexican newspapers reported.

“It would be useful to have better interest rates. Mexico's central bank is going to have to evaluate the context we are in. It should look at the reduction of interest rates by central banks,” Finance Minister Agustin Carstens told local reporters according to El Universal newspaper.

Central banks around the world cut interest rates in unison this week to try to limit economic damage from the worst financial crisis in almost 80 years.

Mexico's peso has been slammed this week by growing expectations that the U.S. credit crisis will spread and push Mexico into a recession as demand slumps for its exports and companies are strained by tightening credit.

Mexico held its benchmark overnight rate steady at 8.25 percent on Sept. 19, breaking a three-month string of increases to avoid further crimping growth.

The government late Wednesday slashed its growth forecast for 2009 to 1.8 percent from 3 percent, in expectation of slowing exports, tourism, investment and remittance flows from Mexicans living abroad.

Carstens said inflation was in line with expectations, which would give the central bank some breathing room.

Mexico's annual inflation dipped in September from more than a five-year high to 5.47 percent, down from 5.57 percent in August, thanks to lower price rises in produce foods.

The peso fell 2.34 percent Thursday to 12.544 per dollar in volatile trade despite the central bank's sale of $1.5 billion. The IPC stock index fell 1.78 percent to 20,310.20, its lowest level since August 2006.

(Reporting by Mica Rosenberg; editing by Carol Bishopric)