Mexico’s central bank keeps interest rate unchanged

Mexico’s central bank held its key lending rate unchanged for the second consecutive meeting, as expected, leaving it at a 9-year high of 7.5 per cent as inflation continued to cool.

The bank said Thursday’s decision was unanimous.

Looking ahead, it said it would maintain a “prudent monetary policy” and keep a close eye on economic variables, notably the impact of the peso on inflation and on Mexico’s monetary position vis-à-vis the US. The central bank said it stood read to act “opportunely and firmly” to keep inflation on track towards the bank’s 3 per cent goal.

Although Brazil’s central bank this week surprised by holding rather than cutting because of the sell-off in emerging market currencies, Banxico’s decision was in line with most market expectations.

Citibanmex said in a note to clients that “although there has been an increase in the volatility of the Mexican peso, this has happened in accordance with a general weakening in emerging currencies (and dollar strength) and the operating conditions in the forex market are orderly”.

Banxico maintained a highly cautious tone. The peso has come under pressure lately in line with other EM currencies due in part to a failure to strike an updated Nafta deal by today — the last date in order to get a deal through the current Congress, according to the US.

With populist nationalist Andrés Manuel López Obrador looking unbeatable, Mexico’s July 1 elections are also weighing on investors. Feelings are split as to whether the impact of a lurch to the left in Mexico is fully priced into the peso yet.

Some analysts expect Banxico will want to keep its powder dry. Banorte said in a note that the bank had “the space to take a ‘wait and see’ posture”.

Inflation data this month showed April consumer prices at their lowest level since late 2016, reassuring investors. Inflation ended 2017 at a 16-1/2 year high.

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Mexico’s central bank keeps interest rate unchanged

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