As expected, the Bank of Mexico kept its policy rate unchanged at 3.0% at its June board meeting. The statement was relatively upbeat on growth and the labour market compared with the bank's recent statements and particularly in the context of growth slowdown in Q1. Yet, the assessment of the balance of risk with regard to inflation, external sector developments and their impact on the financial conditions and the peso, and to some extent on growth front remained unchanged.
The bank considers the risk on the inflation front to be largely balanced as the upside from the passthrough effect of peso depreciation (and possibly from higher wages) is expected to match evenly with the downside risk from low growth and the possibility that lower telecommunications prices continue to contribute to lower inflation (both directly and indirectly), says Socite Generale in a report on Thursday.
Finally, it was also considered it important to keep monetary policy aligned with the Federal Reserve's. Given the context of stable inflation and low core inflation, there is indeed no urgency to consider a rate hike in the near term. The Banxico is likely to leave overnight rates unchanged this year, adds SocGen.
