Trade uncertainty keeps Bank of Mexico on hold

The Bank of Mexico left the policy rate on hold at 7.75% in August, concerned that uncertainty surrounding international trade arrangements could put pressure on inflation.

In its first decision since general elections last month, the central bank’s governing board said there was a risk that trade measures imposed by the US could “give rise to an escalation of protectionist and countervailing actions”, which could push up inflation by causing the peso to depreciate.

The central bank revised up its estimate of inflation for the end of 2018 from 4% to 4.25%. Inflation is still projected to settle around 3.6% at the end of 2019.

The central bank also noted there was a possibility the peso could appreciate if North American Free Trade Agreement negotiations turn out to be “favourable”.

“Summing up, since the last monetary policy decision, the balance of risks to the forecasted trajectory of inflation remains biased upwards, in an environment of high uncertainty,” the governing board said.