July 9, 2018 / 6:58 PM / 5 months ago

UPDATE 1-Mexico central bank urges monetary policy 'caution' amid uncertainty

(Adds central bank board member’s comments on NAFTA, background)

MEXICO CITY, July 9 (Reuters) - The deputy governor of Mexico’s central bank said in a monetary policy speech on Monday that given high uncertainty and risks, “erring on the side of caution will usually be preferable.”

The comments by Deputy Governor Javier Guzman came on the same day that annual inflation for June jumped more than expected, and just days after the central bank said it would need to hike further if inflationary conditions deteriorated.

Guzman also said in a speech in London that as uncertainty levels increase, coordinated use of policy instruments are advantageous. Nonetheless, he added that efforts to bring down inflation had so far been “encouraging.”

“Economic activity has not been significantly affected by the monetary policy stance,” he said, according to a transcript of his remarks delivered at the European Economics and Financial Centre, and released by the Banco de Mexico.

Banxico’s five board members voted unanimously on June 21 to raise the country’s benchmark interest rate to a more than nine-year high of 7.75 percent in the final monetary policy meeting before leftist Andres Manuel Lopez Obrador resoundingly won the July 1 presidential election.

In minutes of the meeting, published last week, all board members thought inflation could cool more slowly than expected due to recent shocks, and warned they may need to hike interest rates again if conditions worsen.

Mexico’s annual inflation rate, which had slowed for five consecutive months, accelerated more than expected in June due to a rise in fuel and energy prices, the national statistics agency said on Monday.

Prices have been under pressure due to peso weakness, sparked by fears surrounding the future of the North American Free Trade Agreement. The United States, Mexico and Canada are currently in talks to redraw the agreement, which U.S. President Donald Trump says is unfavorable to U.S. workers and has threatened to quit.

Guzman said that he hoped “common sense will prevail” in the NAFTA talks, resulting in a better deal and deeper North American integration.

Reporting by Gabriel Stargardter and Anthony Esposito; Editing by Lisa Shumaker

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