By Kylie Madry
MEXICO CITY, Aug 20 (Reuters) – Mexico’s central bank struck a cautious tone in minutes published on Thursday, signaling it is likely to keep interest rates unchanged for some time even though inflation is easing.
At its monetary policy meeting in early August, the Bank of Mexico unanimously held its benchmark rate at 6.5% and said keeping it there would be appropriate given the uncertain global backdrop and lingering inflation risks.
Inflation in Mexico has continued to cool. Headline inflation slowed to 3.10% in the first half of July, while core inflation, which strips out some volatile food and energy prices, fell to 3.95%.
But policymakers said inflation in services such as restaurants, hotels and air travel remains a key concern. Services inflation has stayed above 4% since late 2021, one of the main obstacles to bringing overall inflation back to the bank’s 3% target.
Banxico, as the central bank is known, said price pressures in the sector have lingered because many businesses adjust prices slowly and continue to face elevated costs for labor and living expenses.
The bank also pushed back its expected timing for inflation to return to target, saying headline inflation is now seen converging to 3% in the fourth quarter of 2027.
Still, a strong peso has helped contain price pressures. The currency has strengthened nearly 6% so far this year, helped mainly by a weaker dollar but also by Mexico’s solid macroeconomic fundamentals.
Banxico said Mexico’s economy rebounded 1.5% in the second quarter after shrinking in the previous three months, with manufacturing exports a bright spot.
Policymakers pointed in particular to strong non-automotive shipments, with one board member saying demand linked to artificial intelligence and tech supply chains had helped raise the share of technology goods in Mexico’s exports from under 5% in 2024 to nearly 25% currently.
The minutes also noted that the U.S. Federal Reserve left its target range for the federal funds rate unchanged at 3.50%-3.75% in July, although markets are pricing in a possible increase later in 2026.
(Reporting by Kylie Madry; Editing by Emily Green and Sanjeev Miglani)
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