(Adds comment from dissenting board member, details) MEXICO CITY, Aug 26 (Reuters) - Most members of the Mexican central bank’s rate setting board believed the balance of risks to inflation were biased on the upside when they raised the benchmark rate to 4.50% earlier this month, according to the minutes of the last meeting. The bank announced a hike to its key interest rate of 25 basis points on Aug. 12 in a bid to contain price pressures, with more increases expected this year even though two of its five-member board voted to leave borrowing costs unchanged. Annual inflation through early August dipped to 5.58%, according to data published on Tuesday. But it remained above the bank’s target rate of 3%, which has a tolerance threshold of one percentage point above and below 3%. The majority of the bank’s board pointed out that inflation has remained above the bank’s target for several months, and most noted that the forecasts for the expected trajectories of headline and core inflation had been revised upwards. “The majority of members pointed out that pressures on inflation are associated with shocks that are expected to be transitory. Nevertheless, the majority mentioned the risk that the price formation process is affected,” the minutes said. Most of the rate setters also highlighted the stability of the peso exchange rate and its strong performance compared with other emerging market currencies. Mexico’s economy has struggled to recover from the damage caused by the coronavirus pandemic, with the majority of board members noting the recovery remained weak. The two dissenting voices on the board, Galia Borja and Gerardo Esquivel, both cited the transitory nature of the inflation, while the latter also warned another rate hike could be counter-productive. Esquivel said he felt maintaining the reference rate “did not jeopardize the convergence” of inflation to its target. “On the contrary, raising it again could send the wrong signal that the current inflation is of a more permanent nature, which in turn could affect short- and medium-term expectations, as well as the price formation process,” Esquivel said, according to the minutes. (Reporting by Drazen Jorgic; Editing by Frank Jack Daniel and Marguerita Choy) Our Standards: The Thomson Reuters Trust Principles.