August 24, 2017 / 4:28 PM / a year ago

UPDATE 1-Mexico cenbank sees inflation peaking after hikes, peso recovery

(Adds central bank comments, background)

MEXICO CITY, Aug 24 (Reuters) - Most of Mexico’s central bank board members believe a recent series of interest rate increases and a stronger peso currency should tame a spike in consumer prices, minutes from a policy meeting earlier this month showed on Thursday.

Mexico’s board voted 5-0 to leave its benchmark interest rate at 7.00 percent this month after the bank hiked rates in the previous seven meetings to counter a surge in inflation to its highest level in more than eight years.

A majority of members noted that those rate increases were now beginning to be reflected in consumer prices that showed “a certain reversal in trend.” A majority of the board also noted that a “significant appreciation” in the peso was helping.

Still, the majority said that they “will be vigilant to maintain a prudent monetary policy in order to strengthen the anchoring of medium and long-term inflation expectations and to achieve convergence of inflation to its objective” of 3 percent, according to the minutes.

That backed expectations that the central bank will not soon move to cut back borrowing costs, which are at their highest level since early 2009, analysts said.

Mexico’s peso has gained about 17 percent this year. The currency bounced back from a record low in January as U.S. President Donald Trump was seen moving away from his threats to slap hefty tariffs on Mexican-made goods.

Data earlier on Thursday showed the inflation rate in early August rose more than expected to 6.59 percent.

Investors have been gradually pushing back bets on when the central bank could reduce borrowing costs.

Yields on Mexican interest rate swaps have moved from indicating a rate cut will happen before mid-2018 to the likelihood it will now take place around September 2018.

Minutes showed the majority of members said even though inflation would continue to be above 6 percent in the next few months, it appeared to be reaching its peak, and forecast that by the end of the year the rate would begin to cool.

In the second half of 2018, the majority predicted that inflation would be heading toward its 3 percent target.

Reporting by Dave Graham, Frank Jack Daniel and Michael O'Boyle; Editing by Tom Brown

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