April 12, 2018 / 7:04 PM / 9 months ago

UPDATE 1-Mexico central bank holds key rate steady as inflation cools

(Adds central bank comments, background details)

MEXICO CITY, April 12 (Reuters) - Mexico’s central bank held its benchmark interest rate steady on Thursday, as expected, citing cooling inflation and fewer risks to consumer prices, and signaled its current stance was in line with efforts to bring inflation back to its target.

The Banco de Mexico’s governing board unanimously voted to keep the key rate steady at 7.50 percent, as forecast by 18 of 21 analysts polled by Reuters last week.

In a statement, the bank said that its current monetary policy position was in line with the anchoring of inflation expectations and bringing prices back to its 3 percent target.

The bank said it held rates steady due to “the recent evolution of inflation, as well as the fact that the evolution and prospects of its main determinants and forecasts do not show significant changes.”

It also noted that the probability of the talks to update the North American Free Trade Agreement foundering “have reduced recently.”

Mexico, the United States and Canada are nearing a hard-fought conclusion to talks to overhaul NAFTA, which U.S. President Donald Trump has said is unfair to U.S. workers. Fears that NAFTA could end had heaped pressure on the peso currency, and helped drive prices higher.

However, official data showed on Monday that Mexican inflation cooled more than expected in March to the lowest level in over a year, bolstering analysts’ views that the bank would hold rates steady.

Banco de Mexico Governor Alejandro Diaz de Leon oversaw quarter-percentage-point hikes in each of his first two policy meetings, bringing the key rate to a nine-year high, after taking over at the bank in December.

The central bank said the recent drop in inflation was in line with expectations.

It reiterated that it expects inflation to keep falling, and chose to stick with previous inflation estimates. The bank has previously said it sees inflation getting close to its 3 percent target throughout 2018, reaching the target in the first quarter of 2019 and remaining around 3 percent for rest of next year.

On Thursday, the bank said it sees medium and long-term inflation around 3.5 percent. (Reporting by Anthony Esposito Editing by Gabriel Stargardter and Chizu Nomiyama)

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