Mexico opts to keep rates at 11% amid volatile peso

investmentnews.com:

The peso’s volatility influenced the central bank’s decision Thursday to hold rates steady, Banco de Mexico’s Governor Victoria Rodriguez said. Given its possible effects on inflation, it could also play a role in how the bank weighs future cuts.

The peso slumped after voters chose Claudia Sheinbaum as Mexico’s next president, and has rebounded some since — one factor in the bank’s Thursday decision to hold rates at 11%. Rodriguez said Banxico also took into account the recent acceleration of overall inflation and the bank’s own moderate adjustment to the forecast for price increases.  

She cited progress in the bank’s effort to combat inflation, which along with a restrictive monetary policy have created space to consider rate cuts in future decisions. While the peso’s depreciation can contribute to inflation, it’s also partly offset by a weaker economy, the central bank board said in a statement. 

“In this context, I’d say we continue in a phase in which the advances to the disinflation process and the degree of monetary policy restriction that we have allow us to discuss cuts to the reference rate,” Rodriguez said in an interview with Bloomberg News after Thursday’s decision. 

The governor declined to say whether the bank would consider cutting as soon as August.

Annual consumer price readings in Mexico have accelerated in recent months. The volatility of the exchange rate in the aftermath of the June 2 election led the peso to lose over 7% of its value this month. 

“Going forward, what we’re seeing is that we’ll have space to reduce the degree of restriction. Reducing the rate does not mean that we will stop being restrictive,” Rodriguez said. 

“The exchange rate volatility has been reduced and now it’s returning to