May 17, 2018 / 5:01 AM / a year ago

Mexico central bank seen holding rates steady, flagging peso risks

MEXICO CITY, May 17 (Reuters) - Mexico’s central bank is expected to hold its benchmark interest rate steady at a nine-year high on Thursday after signs of easing inflation, but it could signal that further peso weakness may force rates higher.

Twenty-one of 25 analysts surveyed this week by Reuters expect the Banco de Mexico to keep the policy rate at 7.50 percent, unchanged for the second meeting in a row after a string of hikes.

Four analysts expected a 25 basis point hike, with some highlighting the peso slump that could push up import prices.

The median forecast from the poll showed the benchmark rate ending the year unchanged from the current level.

The Banco de Mexico’s interest rate decision will be released at 1 p.m. local time (1800 GMT).

Data this month showed annual inflation rate in April cooled to 4.55 percent, its lowest since late 2016, after the rate came down from a 16-1/2 year high posted in 2017.

However, the peso recent slump to its weakest in more than a year could push policymakers to consider more interest rate hikes this year, analysts said.

The peso has been hit as a broadly stronger dollar, and could be vulnerable to further weakened in the weeks before Mexico’s presidential election on July 1, as well as worries that the United States, Mexico and Canada may be unable to thrash out a new North American Free Trade Agreement (NAFTA) this year.

“While inflation has performed slightly better than Banxico had expected ... with just two meetings to go before the presidential election – and with NAFTA risk probably about to peak – Banxico is likely to keep a cautious tone,” analysts at Citi Research said in a note to clients. (Reporting by Michael O’Boyle; Editing by Simon Cameron-Moore)

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