(Bloomberg) — Mexico’s central bank kept borrowing costs unchanged Thursday after inflation reaccelerated last month, taking the remote possibility of a second straight interest rate cut off the table.
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Banxico, as the central bank is known, held its key interest rate at 11% in an unanimous decision that had been forecast by 28 of 30 economists surveyed by Bloomberg. Two of them expected another quarter-point cut.
The board “will assess the inflationary environment in order to discuss reference rate adjustments,” policymakers wrote in a statement accompanying their decision. “It will also consider the incidence of both therestrictive policy stance that has been maintained and that prevailing in the future on inflation throughout the horizon in which monetary policy operates.”
Baxico’s decision underscores the persistence of elevated inflation in Latin America’s second-biggest economy, as domestic consumption remains strong thanks to remittances from Mexicans living abroad and cash transfer programs sponsored by President Andres Manuel Lopez Obrador. Price increases have been above target for almost four years, evan as double-digit borrowing costs slow down the economy.
“Inflation has rebounded and new upside risks have been added,” Gabriela Siller, director of economic analysis at Grupo Financiero Base, said before the decision. “We believe this year the benchmark rate will close at 10.25% or 10.50%, with two or three more cuts by the end of the year.”
Earlier Thursday, a government report showed consumer prices rose 4.65% in April, above the 4.63% median estimate of analysts surveyed by Bloomberg and the 4.42% increase a month earlier. Banxico targets inflation at 3%, plus or minus 1 percentage point.
Annual core inflation, which strips out volatile items like food and fuel and is closely watched by Banxico, slowed to 4.37% from 4.55% in March.
Read more: Mexico Cuts Key Interest Rate For First Time Since 2021
After cutting interest rates in March to 11% from 11.25%, policymakers led by Governor Victoria Rodriguez emphasized that future adjustments will be gradual and evaluated one at a time.
In an interview with Bloomberg News last month, Deputy Governor Irene Espinosa, the only board member who voted to keep the rate unchanged in March, said it’s too soon to talk about a prolonged easing cycle.
Banxico Deputy Governor Jonathan Heath also said that inflation hasn’t slowed as the bank would like to see due to the federal government’s expansionary fiscal policy and a tight labor market.
Read more: Banxico’s Espinosa Says It’s Too Soon for a Long Easing Cycle
The most recent Citi survey of local economists published Tuesday has Banxico cutting interest rates 25 basis points in its June 27 meeting. Citi raised its inflation forecast for the end of 2024 to 4.17% from 4.10 previously and kept the forecast for the end of 2025 at 3.70%.
Siller sees government spending and the “high” budget deficit as posing upside risks for inflation in the first half of the year.
“In the second half of the year, with less pressure, there will be a more conducive environment to cut interest rates,” she said.
Read More: Mexico’s Economy Grows Slightly Ahead of Key Rate Decision
–With assistance from Rafael Gayol.
(Updates with unanimous decision and comment from policymakers in second and third paragraphs.)
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