Bank of America sees Mexican inflation rising to 4% this year

FILE PHOTO: A Bank of America logo is pictured in the Manhattan borough of New York City, New York, U.S., January 30, 2019. REUTERS/Carlo Allegri

MEXICO CITY (Reuters) - Bank of America revised its inflation forecast for Mexico this year to 4%, from 3.7% previously, the bank said in a research note, adding that the current climate makes further interest rate cuts by the central bank more difficult.

Latin America’s second-largest economy had posted a higher-than-expected inflation rate for June and the Mexican central bank, known as Banxico, did not rule out further rate cuts.

“But we believe further cuts will be data dependent, in particular to developments in inflation and the foreign exchange,” according to the Bank of America research note dated Thursday.

With the U.S. presidential election in the second half of 2020, fiscal concerns in Mexico and the coronavirus still spreading, Bank of America said Banxico’s key overnight lending rate should stay at around 5% for the remainder of the year due in part to core inflation remaining above the central bank’s 3% target.

Mexico’s national statistics agency INEGI said the annual inflation rate picked up in June to 3.33% from May’s 2.84%. It compares with a rate of 3.95% from the same month a year earlier.

A Reuters poll of analysts had forecast annual inflation at 3.20%.

Banxico cut its benchmark interest rate to 5.00% on June 25, the lowest level in nearly four years, citing worries about growth and an uncertain outlook due to fallout from the pandemic.

Reporting by Abraham Gonzalez and Sharay Angulo; Writing by Stefanie Eschenbacher; Editing by David Alire Garcia and Jonathan Oatis