MEXICO CITY, Aug 20 (Reuters) – The board of Mexico’s central bank signaled more rate holds ahead, minutes from the August meeting showed on Thursday, pointing to falling inflation, a strong peso and a still-weak economy.
The board, which unanimously voted earlier this month to hold the rate at 6.5%, said inflation is on track to keep slowing, but more gradually than previously expected.
Most members said the inflation prognosis had been revised in part because services prices are still rising quickly, even though headline inflation fell to 3.10% in the first half of July and core inflation, which strips out volatile food and energy prices, eased to 3.95%.
Banxico, as the central bank is known, targets inflation at 3%. The board said headline inflation is expected to reach this goal in the fourth quarter of 2027.
Most members said the main forces shaping inflation still point to lower price pressures ahead, helped by economic slack, a relatively strong peso and the effects of tight monetary policy.
The minutes also showed the board remains cautious on the economy. Most members said gross domestic product (GDP) grew in the second quarter after shrinking in the first, but stressed that the output gap remained negative, meaning the economy is still operating below its full potential.
One member said growth this year could exceed Banxico’s current 1.1% forecast, though the overall outlook remains weak.
Most members said the balance of risks for inflation remains tilted to the upside. They cited persistent services inflation, uncertainty over trade policy and the risk that the conflict in the Middle East could push up oil and transport costs.
One member also warned that a stronger El Niño weather pattern later this year could add fresh pressure to prices.
(Reporting by Kylie Madry; Editing by Emily Green)
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