MEXICO CITY, March 26 (Reuters) - Mexico’s central bank is expected to hold interest rates steady at a record low on Thursday, weighing tame inflation against a sharp slump in the peso that could push consumer prices higher.
Twenty-six out of 27 analysts polled by Reuters expect the Banco de Mexico to hold its key rate at 3.00 percent on March 26, after inflation slowed to the central bank’s 3 percent target for the first time in nearly nine years.
But this month Mexico’s peso fell to historic lows against the dollar, hammered by a slump in oil prices and fears that an imminent hike in interest rates by the U.S. Federal Reserve may spur capital flight from emerging markets.
In Thursday’s decision, “We expect to see ... greater worry about some sort of pass-through from the peso’s depreciation against the dollar to inflation,” Banorte said in a client note on Wednesday.
Mexico’s central bank governor, Agustin Carstens, said earlier this month that the marked decline in the peso had done little to stoke price pressures, adding that inflation would be contained in the medium term.
But he did not rule out discretionary intervention to support the Mexican peso, describing the currency as “undervalued.” The bank has so far launched two dollar auction programs to boost liquidity and stabilize the foreign exchange market.
Policymakers held borrowing costs steady in January, eyeing the risk that a sharply weaker peso could push consumer prices higher while also noting big risks to growth.
A majority of Wall Street’s top banks now see the Federal Reserve holding off until at least September before raising interest rates for the first time since 2006, after the U.S. central bank downgraded its assessment on the economy and forecast a gentler path of rate hikes over the next two years.
Ten analysts polled by Reuters were evenly divided over whether Banxico will raise rates before or after the Fed moves.
The median bet of analysts is for a tightening cycle to begin with a 50-basis-point hike in the third quarter, pushing borrowing costs up to 4.25 percent by the fourth quarter of 2016.
The central bank will issue its policy statement at 1 p.m. local time (1900 GMT) on Thursday. (Reporting by Alexandra Alper; Editing by Jonathan Oatis)