Mexico central bank seen holding key rate as peso stabilizes

Mexico’s central bank is expected to hold its key interest rate steady on Thursday after a sharply depreciated Mexican peso steadied and consumer prices rose less than expected.

All 17 analysts surveyed by Reuters expect the Bank of Mexico to leave its benchmark rate MXCBIR=ECI at 4.25 percent, after a unanimous 50-basis-point hike in June aimed at calming concerns a peso slump could stoke inflation.

But the central bank is expected to hike the rate again by 25 basis points in the fourth quarter, the poll showed, amid expectations the Federal Reserve will raise benchmark U.S. interest rates again this year after a stronger-than-expected July U.S. employment report.

The peso MXN=D2 MXN= has firmed around 6 percent since hitting a life low of 19.5225 per dollar on June 24, the day after Britain’s Brexit vote sent shockwaves through global markets. It is currently trading broadly around the same levels seen after late June’s aggressive rate hike.

“After the 50-basis-point adjustment, there have been no episodes, at least in the last two weeks, to suggest that the balance of risks has changed; in fact they have improved a bit,” said James Salazar, an economist at CI Banco.Mexican consumer prices rose 2.65 percent in the year through July, national statistics agency INEGI said on Tuesday, but remained below the central bank’s 3 percent target, giving policymakers room to hold rates steady.

Last month, Central Bank Governor Agustin Carstens said policymakers were aiming to prevent weakness in the peso from hitting inflation, but warned inflation could rise above 3percent this year.

Economic growth remains a concern. Analysts polled by the central bank this month lowered their 2016 Mexican growth estimate to 2.3 percent from 2.4 percent, and also trimmed their 2017 growth outlook to 2.65 percent from 2.7 percent.

Source: Reuters