mexico interest rates

Mexico central bank seen holding rates steady

Mexico’s central bank is expected to hold its key lending rate steady on Thursday after peso gains tamed concerns about higher inflation.

All 25 analysts surveyed said they expect the Banco de Mexico to keep the benchmark interest rate MXCBIR=ECI at 3.75 percent. The central bank is due to announce its decision at 1300 local time (3 p.m. ET) on Thursday.

Mexico’s peso has gained about 6 percent since the central bank unexpectedly raised rates by 50 basis points in February and directly intervened in the foreign exchange market for the first time since 2009 to try to halt a slide in the currency.

The peso’s comeback has eased concerns that currency weakness could hit inflation expectations, while weak U.S. data has sown doubts about how quickly the U.S. Federal Reserve could raise interest rates this year.

Mexico is expected to raise borrowing costs along with the Fed to prevent foreign investors from dumping local debt as U.S. interest rates rise.

Still, the peso suffered sharp losses in the last two days, and Mexico’s central bank is likely to reiterate its threat that it could hike interest rates if peso losses begin to hurt the outlook for inflation.

So far, the pace of consumer price gains has been surprisingly low. Mexico’s annual inflation rate rose less than expected in the first half of April to 2.60 percent, remaining below the central bank’s 3 percent target.

Mexico’s economy grew faster than expected in the first quarter, preliminary data showed last week, but the central bank could highlight risks to growth from sluggish industrial activity in the United States, Mexico’s top trading partner.

Mexican policymakers are now seen hiking fewer times this year after the modest recovery in the peso and renewed concerns about U.S. growth and demand for Mexican exports.

According to the Reuters poll, the median estimate is now for just one more 25 basis point hike in Mexico by the end of the third quarter.

The previous poll in March forecast a 25 point hike in the second quarter and another quarter-point increase by the end of 2016.

(Reporting by Michael O’Boyle; Editing by Leslie Adler)

Puerto Vallarta News

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