
Mexico’s Central Bank Maintains Interest Rate Amid U.S. Election Risks, Reports Reuters
By Alexandra Alper and Luis Rojas
MEXICO CITY – Mexico’s central bank opted to maintain its borrowing costs on Thursday, signaling concerns over slowing growth and the possibility that uncertainties surrounding the upcoming U.S. presidential election could exacerbate the depreciation of the peso, potentially leading to increased inflation.
The Banco de Mexico kept its key interest rate at 4.25 percent, a decision that was anticipated by all 17 analysts surveyed prior to the announcement. This followed a unanimous 50-basis-point increase in June aimed at preventing a weak peso from adversely affecting consumer prices.
The peso has seen a partial recovery, strengthening nearly 7 percent since reaching an all-time low of 19.5225 per dollar on June 24, just after the Brexit referendum caused turmoil across global markets.
However, central bank officials have expressed that they cannot dismiss the risk of a more pronounced economic downturn, particularly in light of the approaching U.S. election in November, the possibility of declining oil prices, and further tightening measures by the U.S. Federal Reserve.
Donald Trump, the Republican presidential nominee, launched his campaign last year with controversial remarks about Mexico, and some analysts have warned that a Trump victory could lead to the peso weakening beyond 20 per dollar.
The central bank maintained a neutral outlook on inflation and reiterated its forecast that inflation would close the year slightly above its 3 percent target, eventually aligning around 3 percent in the following year.
Recent data indicated that Mexican consumer prices rose by 2.65 percent year-over-year through July, remaining below the central bank’s target, which allows for the maintenance of current interest rates.
Despite these inflation metrics, the growth outlook has dimmed due to stagnation in the industrial sector and disappointing performance in services. Recent statistics revealed that industrial output showed minimal growth in June, hindered particularly by declines in the mining sector, which includes oil production.
In light of global economic uncertainties, policymakers at the central bank advised the Mexican government to implement additional measures aimed at strengthening public finances, such as targeting a primary budget surplus for the next fiscal year.