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In its first decision since national elections last month, the
Bank of Mexico was seen holding its benchmark rate at an over
nine-year high of 7.75 percent<MXCBIR=ECI>, according to 15 of
19 analysts polled by Reuters.
Mexico's peso has gained around 12 percent since mid-June, just
before the landslide victory of leftist Andres Manuel Lopez
Obrador as president on July 1, buoyed by market friendly
comments made by him and his team.
Analysts at Nomura said in a note that the peso's gains were an
"important factor in containing the upside risks in the outlook
for inflation, making a hold more likely than not in the
upcoming Banxico decision."
Data this week also showed Mexico's economy shrank slightly in
the second quarter, which supports expectations of steady
borrowing costs given that any demand-led pressure on inflation
was likely to be low, analysts said.
Mexico's central bank hiked rates in June after the U.S. Federal
Reserve raised borrowing costs and following a slump in the peso
that fanned concerns inflation could take longer than expected
to cool back toward policymakers' 3 percent target.
Still, analysts at Banorte said they expected the central bank
would leave the door open to further interest rates hikes in
case the peso is battered again.
The peso was hit earlier this year by a broad dollar rally and
worries about the success of talks to renegotiate the NAFTA
trade deal between Mexico, the United States and Canada.
The United States and Mexico resumed talks last week, which has
helped the peso, but uncertainty about the negotiations could
fuel further volatility in the currency.
Four analysts thought the central bank would raise rates again
by 25 basis points to 8 percent after the annual inflation rate
picked up in early July to 4.85 percent.
The central bank will publish its monetary policy decision at 1
p.m. local time [1800 GMT].
(Reporting by Michael O'Boyle; Editing by Shri Navaratnam)
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