Mexico’s Central Bank Expected to Maintain Key Rate as Peso Stabilizes, According to Reuters

By Noe Torres and Jean Luis Arce

MEXICO CITY (Reuters) – Mexico’s central bank is anticipated to maintain its key interest rate on Thursday, as the Mexican peso has stabilized after a period of significant depreciation, and consumer prices have increased less than expected.

All 17 analysts surveyed expect the Bank of Mexico to keep its benchmark rate at 4.25 percent following a unanimous decision to raise it by 50 basis points in June, which aimed to alleviate concerns that a falling peso could fuel inflation.

However, analysts predict that the central bank will implement a 25 basis point increase in the fourth quarter, supported by expectations that the U.S. Federal Reserve will hike its benchmark interest rates again this year following stronger-than-anticipated employment data in July.

Since reaching a record low of 19.5225 pesos to the dollar on June 24, a day after the Brexit vote, the peso has strengthened by about 6 percent and is currently trading at levels similar to those following the late June rate hike.

James Salazar, an economist at CI Banco, noted, "After the 50-basis-point adjustment, there have been no significant indicators in the last two weeks to suggest a change in the balance of risks; in fact, the situation has improved somewhat." According to the national statistics agency INEGI, Mexican consumer prices rose 2.65 percent in the year ending in July, remaining below the central bank’s target of 3 percent, which provides policymakers flexibility to keep rates unchanged.

Central Bank Governor Agustin Carstens highlighted last month that officials are focused on preventing a weak peso from impacting inflation, although he warned that inflation could surpass 3 percent later in the year.

Economic growth continues to raise concerns. Analysts surveyed by the central bank have revised their growth forecast for Mexico in 2016 down to 2.3 percent from 2.4 percent and have also adjusted their 2017 growth outlook from 2.7 percent to 2.65 percent.