Mexican central bank likely to stand pat in November

The Mexican central bank is set to meet today for its monetary policy decision. According to a Commerzbank research report, the Central Bank of Mexico is expected to keep its key rate on hold at 7 percent again. The drop in the third quarter economic growth is because of the earthquake and tornados and therefore there is no reason for the central bank to react to the GDP data with reductions in interest rate.

Meanwhile, inflation rate in country has remained around 6 percent in October, coming in at 6.37 percent. It is expected to ease towards the central bank’s target rate again next year. Therefore, several observers anticipate that the central bank will initiate a rate cut cycle in mid-2018.

The recently weakened peso might delay the disinflation process, stated Commerzbank. The renegotiations of the NAFTA agreement and the U.S. monetary policy also indicate towards peso weakness. In the run-up to the Presidential elections in July 2018 there might be some pork barrel legislation that might keep inflation rates elevated for longer. Therefore, the central bank might keep rates on hold for longer, stated Commerzbank.

“If the NAFTA negotiations were to fail the central bank may even have to implement emergency rate hikes to weaken the depreciation pressure on the peso”, added Commerzbank.

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