August 22, 2019 / 11:42 AM / 4 months ago

UPDATE 2-Cooler Mexican inflation opens door to more possible rate cuts

(Adds comment from economist, background)

MEXICO CITY, Aug 22 (Reuters) - Mexican consumer price inflation eased more than expected during the first half of August, data from the national statistics agency showed on Thursday, which could create room for the central bank to lower borrowing costs in the coming months.

In the year through early August, prices rose by 3.29%, below the forecast of a Reuters poll of economists for a reading of 3.56%. In July, annual inflation slowed to 3.78%.

Last week the central bank cut its benchmark lending rate for the first time since June 2014, citing slowing inflation and increasing slack in the economy, and fueling expectations that further monetary policy easing could be on the way.

In a 4-1 decision, the Bank of Mexico’s five-member board voted to lower the key rate by 25 basis points to 8.00%.

The bank targets an inflation rate of 3%, with one percentage point tolerance above or below that figure.

Mexico’s economy barely broke into positive territory during the first half of 2019, and Central Bank Governor Alejandro Diaz de Leon on Wednesday flagged concerns about the growth outlook.

Alberto Ramos, an economist at Goldman Sachs, said the latest data paved the way for the bank to cut interest rates again at its next monetary policy meeting on Sept. 26, provided the peso currency did not suffer a “major shock”.

“We expect another 25 basis point rate cut at the September MPC meeting and at least two 25 basis point rate cuts before the end of the year,” Ramos said in a note to clients.

Compared with the previous two-week period, prices fell by 0.08% during the first half of August, the data showed. The Reuters poll had forecast a rise of 0.17%.

The core price index, which strips out some volatile food and energy prices, climbed by 0.11% in the same period. (Reporting by Dave Graham; Editing by Steve Orlofsky and David Gregorio)

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