The Bank of Mexico (Banxico) left interest rate unchanged at 7.00%, as expected. It is the first time since August of last year that the central bank does not hike. The move could be seen as the end of the tightening cycle that started in December 2015, when it rose the key rate from 3.00% to 3.25%.
The stabilization of the Mexican peso, growth below potential and expectations that inflation would peak in the short-term, opened the doors to the end of rate hikes. If inflation starts to decline, analysts will start considering the possibility of rate cuts.
Yesterday, the inflation data showed that the annual CPI rate in July rose to 6.44%, the highest level since December 2008, far from the 3% target of Banxico. The index rose 0.38% in July above the 0.29% expected.
In today’s statement, the Mexican central bank said that the decision to keep rates unchanged was unanimous. They will continue to closely monitor all factors affecting inflation particularly the pass-through from the exchange rate and the output gap. They will also evaluate polity differentials with the US.
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