Mexico central bank expected to hold rates steady, NAFTA eyed

MEXICO CITY (Reuters) – Mexico’s central bank will likely keep its benchmark interest rate unchanged this week due to expectations inflation will continue to ease, but it may offer words of caution on the exchange rate, a Reuters poll showed on Tuesday.

All 14 financial market analysts surveyed by Reuters expect the Bank of Mexico to hold the benchmark rate at 7.00 percent, where the rate has been since June.

The median forecast of the analysts surveyed expect the rate to remain at 7.00 percent through the end of 2017.

The bank will hold rates but send a cautious message on the exchange rate due to U.S. monetary policy beginning to normalize and the ongoing renegotiation of the North American Free Trade Agreement (NAFTA), said Santander (MC:) analyst Rafael Camarena.

Several other analysts offered a similar assessment of what the bank could say on the exchange rate.

Mexico’s peso fell by nearly 5 percent against the dollar in October, dragged down by uncertainty over the future of NAFTA and market expectations that the U.S. Federal Reserve bank will raise its key interest rate in December.

U.S. President Donald Trump has threatened to withdraw from NAFTA if it cannot be reworked in favor of the United States.

Mexican central bank governor Agustin Carstens said late last month that he believes inflation has peaked and is on track to reach the bank’s target rate of 3 percent in 2018.

Inflation was running at 6.30 percent in the first two weeks of October. In the second half of August it was 6.74 percent.

The central bank will publish its latest monetary policy decision at 1 p.m. (1900 GMT) on Thursday.

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