Mexican central bank likely to keep rates unchanged for some time

The central bank of Mexico is set to meet today for its policy rate decision. According to a Commerzbank research report, the Banxico is likely to stand pat today, keeping the key rate on hold at 7.50 percent. Inflation has slowed considerably since the beginning of this year. In April, Mexico’s consumer price inflation came in at just 4.6 percent after reaching 6.8 percent by the end of last year. The Mexican central bank had stated that the fall was more pronounced than expected. Therefore unchanged interest rates appear appropriate in view of already high interest rate levels, noted Commerzbank.

Meanwhile, the subdued peso is expected to be a thorn in the central bank’s side as it might further raise inflation pressure. But, the question arises whether the peso weakness is sustainable. Positive news as regards the NAFTA negotiations might cause the peso to appreciate again. Therefore the central bank might take a wait and see approach for now, rather than raising the interest rate prematurely.

“Its statement is likely to be hawkish though. It will probably make it clear that it is quite willing to hike the key rate should the peso weakness endanger the return of the inflation rate towards its inflation target of 3 percent”, added Commerzbank.

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