(New throughout, adds central bank quote on inflation
By Alexandra Alper
MEXICO CITY, Sept 5 Mexico's central bank kept
interest rates on hold on Friday, highlighting stronger economic
growth and forecasting that inflation pressures would ease in
the first half of 2015, boding for steady borrowing costs ahead.
The Banco de Mexico maintained its benchmark interest rate
at a record low of 3 percent, as expected by
analysts polled by Reuters, after policymakers surprised markets
by delivering a 50 basis point cut in June.
Growth wobbled early this year, as a harsh U.S. winter
hammered American demand for Mexican factory exports and a tax
hike dragged on consumer spending.
But data last month showed second-quarter growth beat
expectations thanks to a pick up in industrial activity and
domestic demand, bolstering bets that economic expansion could
reach the finance ministry's 2.7 percent growth forecast for
Policymakers said stronger external demand and a slight
recovery in domestic spending fueled the pick-up, but said slack
in the economy would keep stronger growth from fanning price
Owing to short-term pressures like cattle prices, annual
inflation would likely take longer than earlier forecast to cool
toward the bank's target of 3 percent a year, according to the
"It is expected that inflation will close 2014 at around 4
percent," the bank's board said in a statement on Friday. "There
will be a significant decrease (in inflation) at the beginning
of 2015, and it will near the 3 percent level during the first
half of the year and close 2015 around that level."
In July, the central bank had forecast inflation would be in
around 3 percent in January, and Central Bank governor Agustin
Carstens said last week he saw "very good prospects" that
inflation will near the target at the beginning of next year.
Mexico's central bank has a tolerance band of 1 percentage
point for its inflation target of 3 percent.
Annual inflation stayed above the central bank's 4 percent
tolerance ceiling in early August but eased slightly from late
But Mexican fiscal policy, which is expected to tighten next
year, gives the bank another reason to keep monetary policy on
hold longer, Barclays said in a client note.
Meanwhile, the U.S. Federal Reserve is not likely to begin
its hiking cycle until the second quarter, according to a
Reuters poll, easing pressure on Mexican policymakers to raise
"All in, Banxico is far from implementing a hiking cycle,
while no more cuts will be implemented, unless the economy does
not consolidate its recovery," Barclays said in a client note.
The median forecast of analysts surveyed by Reuters is for
the central bank to raise its benchmark rate 50 basis points in
the third quarter of 2015.
(Reporting by Alexandra Alper, Dave Graham, Simon Gardner,
Editing by W Simon)