Mexico central bank holds rates steady after new NAFTA deal

FILE
PHOTO: Mexico’s Economy Minister Guajardo, Canada’s Foreign
Minister Freeland and U.S. Trade Representative Lighthizer arrive
for a meeting during the third round of NAFTA talks in
Ottawa
Thomson
Reuters

Mexico’s central bank is held its benchmark interest rate steady
Thursday in a policy announcement as inflation cools and after
officials reached a breakthrough on NAFTA.

The move was in line with expectations. More than two-thirds of
analysts polled by Reuters predicted the Bank of Mexico would
keep its benchmark interest rate at 7.75%, the level it has
been at since a quarter-percentage-point hike in June.

“Given the complex environment the Mexican economy faces,
Banco de México’s Governing Board considers that the balance of
risks for growth continues biased to the downside,” the central
bank said in a
statement. “This bias has decreased at the margin as a result
of the recently approved trade agreement with the United States
and Canada.”

The 
US and Canada reached a revised NAFTA
deal with Mexico this week, easing trade tensions that have
threatened growth. The
United States-Mexico-Canada Agreement aims to modernize a
trading system that has been in place for decades and that
President Donald Trump had threatened to scrap.

Leaders including President-elect Andres Manuel Lopez
Obrador and legislatures in the three countries still have to
sign off on USMCA, which is expected to happen next
year. 

Inflation remains far from the central bank target of 3% but is
expected to moderate in coming months. Consumer prices rose less
than expected in early September at 4.88%, according to the
national statistics agency, a welcome sign of slowdown after the
index hit its highest level in a decade and a half in 2017.

“Banxico has given ample signals throughout the year that it
considers the earlier tightening as sufficient to bring inflation
back to target, and we do not think there will be any more rate
hikes unless inflation proves stubborn,” Societe Generale wrote
in a research note. 

Mexico’s
currency has lost about 1% against the dollar since last
week, when the Federal Reserve increased its benchmark interest
rate for a third time this year and signaled another hike in
December. Ahead of the Bank of Mexico announcement, the peso was
down 0.5%.