Mexico’s central bank was unanimous in its decision to keep interest rates on hold last month, but most board members flagged the risk of a disorderly slump in the peso, which could hit inflation, meeting minutes showed on Friday.
At their March 18 meeting, policymakers voted 5 to 0 to keep their benchmark interest rate at 3.75 percent after a surprise 50-basis-point hike in February to shore up the peso, which has fallen sharply against the dollar since late 2014.
The Mexican currency, which has been battered by tumbling oil prices, however, hit its highest level in 2016 this week after U.S. Federal Reserve President Janet Yellen said the Fed should be cautious in hiking rates.
Mexico raised interest rates after U.S. in December 2015
Fears of a Fed hike spurring capital flight from emerging markets prompted Mexico to raise interest rates in lock step with the U.S. central bank in December.
Some policymakers said Mexico’s bank could adjust interest rates independently of the Fed if inflation expectations diverge from the central bank’s 3 percent target or if faced with further episodes of market volatility.
But a majority reiterated that the February rate increase was not the beginning of a hiking cycle.
Most central bankers saw a neutral outlook for inflation, predicting consumer prices would creep up to just above target this year before falling to around 3 percent by the close of 2016.
Mexican consumer prices rose more than expected in early February to their highest since last April on a surge in food costs, but core inflation showed only modest pressure from the peso’s slump.
Mexico’s economy slows as industry sputters
Some policymakers predicted a gradual economic recovery, but most said the growth outlook was unchanged from the Feb. 4 decision.
Mexico’s economy grew at its fastest pace in five months in January, data showed this week, helped by a pickup in industrial activity while the service sector also expanded.
Last year, weakness in U.S. industrial output weighed on Mexican growth, which slowed more than expected in the fourth quarter. But domestic spending has underpinned growth.
Mexico is the world’s 10th-largest oil producer and oil revenues account for about 10 percent of its exports and about one-third of government spending, according to the U.S. Energy Information Agency. Crude oil prices have fallen more than 70 percent in the past two years.
(Reporting by Alexandra Alper and Dave Graham; Editing by Dan Grebler)
Mexico's central bank was unanimous in its decision to keep interest rates on hold last month, but most board members flagged the risk of . . .
