MEXICO CITY, Feb 4 (Reuters) - Mexico’s central bank is expected to hold borrowing costs steady on Thursday after inflation expectations improved despite a deep slump in the peso last month.
All 15 analysts surveyed last week by Reuters said they expect the central bank to hold its key lending rate at 3.25 percent.
The Banco de Mexico hiked its key rate in December for the first time in seven years from a record low of 3 percent, hoping to support the peso after a rate increase by the U.S. Federal Reserve threatened to sap demand for emerging market assets.
The Mexican central bank decision comes after the U.S. Federal Reserve kept borrowing costs unchanged last week. Mexican policymakers have suggested they could closely follow the moves of the Fed.
Mexico’s currency has hit a series of record lows against the dollar but that has not yet stoked inflation, which is near its lowest level on record.
The annual inflation rate rose in early January from a record low to 2.48 percent, but remains well below the central bank’s 3 percent target.
The peso has tumbled more than 6 percent since the last Mexican policy meeting on Dec. 17, but analysts do not expect a big impact on inflation any time soon. A central bank poll this week showed median inflation expectations for the end of 2016 fell to 3.10 percent versus 3.38 percent seen in December.
Analysts will be closely watching the bank’s statement to see if it provides any hints Mexico could end up raising interest rates ahead of the Fed in order to boost the peso.
Last year, after a sharp drop in the peso, policymakers suggested they could move before the Fed if currency losses began to threaten inflation expectations.
Policymakers could also highlight risks to growth after signs of weaker industrial production in the United States, Mexico’s chief trading partner. That could dampen the prospects of another hike before the Fed.
Mexican growth slowed in the fourth quarter due to flat industrial activity, preliminary data showed.
According to the Reuters poll, the median expectation of analysts is for the central bank to hike interest rates to 3.50 percent in the second quarter and to 3.75 percent by the end of the year.
The Mexican central bank will publish its decision at 13:00 local time (1900 GMT) on Thursday. (Reporting by Michael O‘Boyle; Editing by Lisa Shumaker)