UPDATE 2-Mexico central bank raised rates to avoid price risks: minutes | Reuters

(Adds central bank comments)

MEXICO CITY, June 1 Mexico’s central bank board
agreed unanimously they needed to raise interest rates last
month to anchor inflation expectations, but they were divided on
whether they were close to finishing a cycle of increases,
minutes of the meeting showed on Thursday.

The Banco de Mexico voted 4-0 in its May 18 decision, with
board member Roberto del Cueto absent, to raise its benchmark
rate by 25 basis points to 6.75 percent, the
highest since March 2009, in a move that surprised most
analysts.

Mexico’s central bank has raised interest rates by 375 basis
points since the end of 2015 to limit the inflationary impact of
a deep peso slump.

According to the minutes, two board members thought the bank
was nearly done raising rates, barring any big new shocks to
prices, while the two other members thought policymakers should
wait to make sure inflation is converging again to the bank’s 3
percent target before deciding if they are done.

Three of the members thought the balance of risks to
inflation had lessened modestly since their previous meeting in
late March.

Mexico’s annual inflation rate rose more than expected in
early May to 6.17 percent, the fastest pace in more than eight
years.

Minutes showed most policymakers thought inflation would
begin to fall by later this year and converge back to the 3
percent target by the end of 2018.

A deep slump in the peso last year pushed prices higher, but
the currency has recovered this year as concerns have waned that
the United States may impose tariffs on Mexican-made goods.

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Most board members thought the balance of risks for growth
had a downward bias, but they said there was “the perception
that the probability that some of the most extreme negative
risks materialize has diminished.”

U.S. President Donald Trump’s administration has softened
its rhetoric on trade with Mexico and agreed to renegotiate the
North American Free Trade Agreement (NAFTA), after Trump
previously threatened to rip up the deal.

The central bank on Wednesday raised its 2017 growth
forecast to between 1.5 percent and 2.5 percent after a
stronger-than-expected first quarter, when uncertainty about
Trump’s policies hung over the economy.
(Reporting by Michael O’Boyle; Editing by Bernadette Baum and
Steve Orlofsky)

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