October 4, 2018 / 5:04 AM / 12 days ago

Mexico cenbank seen holding steady after trade deal done

MEXICO CITY, Oct 4 (Reuters) - Mexico’s central bank is expected to hold interest rates steady on Thursday after inflation stabilized and successful talks to update a free trade deal with the United States and Canada eased pressure on the peso.

The Bank of Mexico is expected to keep its benchmark interest rate steady at 7.75 percent, a 9-1/2 year high, according to 18 of 26 analysts polled by Reuters this week.

Washington and Ottawa reached an agreement on Sunday after weeks of tense bilateral talks to rework the 1994 North American Free Trade Deal into the new United States-Mexico-Canada Agreement (USMCA).

Mexico and the United States struck a deal in August.

The conclusion of the trade talks removed a cloud of uncertainty over Mexico’s economy that had weighed on the peso since the election of U.S. President Donald Trump.

“A ‘hawkish hold’ continues to be the most likely outcome in our view, as core inflation remains well behaved and the peso has stabilized following the U.S.-Mexico trade deal and as Canada agreed to join,” analysts at Bancomer wrote this week.

The inflation rate, meanwhile, rose less than expected in the first half of September and analysts expect the pace of consumer prices increases will cool.

Mexico’s economy shrank slightly in the second quarter from the previous three-month period, as agriculture and manufacturing contracted, easing concerns that economic growth would push inflation higher.

The eight dissenting analysts in the poll foresee a 25-basis-point hike to 8 percent, pointing to external risk factors that could hit the peso such as trade tensions between the United States and China.

The central bank will publish its monetary policy decision at 1 p.m. local time (1800 GMT). (Reporting by Michael O’Boyle; Editing by Richard Borsuk)

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