Minutes from Banco de Mexico's August meeting show the board expects to keep holding its benchmark rate at 6.5%, pointing to a slower path for inflation, a firm peso and a still-weak economy. Most members still see the risks to inflation tilted to the upside.
Banco de Mexico's board signaled more rate holds ahead, according to minutes from the August meeting released Thursday. The board had already voted unanimously earlier this month to hold the interest rate at 6.5%.
Inflation cools, but more slowly than expected
Most members said their inflation outlook had shifted because services prices are still rising quickly, even though headline inflation fell to 3.10% in the first half of July and core inflation eased to 3.95%. Banxico targets 3% inflation and now expects to hit that goal in the fourth quarter of 2027.
However, most members pointed to economic slack, a relatively strong peso and tight monetary policy as forces still pointing toward lower price pressures ahead. The balance of risks for inflation remains tilted to the upside, most members said, citing persistent services inflation, uncertainty over trade policy and the risk that the conflict in the Middle East could push up oil and transport costs.
Growth stays weak despite a second-quarter rebound
The minutes also showed the board remains cautious on growth. Most members said gross domestic product expanded in the second quarter after shrinking in the first, but stressed the output gap remained negative, meaning the economy is still operating below its full potential.
One member said growth this year could exceed Banxico's current 1.1% forecast, though the overall outlook remains weak. One member also warned that a stronger El Niño weather pattern later this year could add fresh pressure to prices.
Source: Investing.com
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