March 28, 2019 / 7:20 PM / 10 months ago

Mexico central bank holds rates steady, flags rating risks

MEXICO CITY (Reuters) - Mexico’s central bank held its benchmark interest rate steady on Thursday, as expected, flagging economic uncertainty and risks surrounding the credit ratings of both state oil company Pemex and the government.

FILE PHOTO: A view of the facade of the Bank of Mexico office building in downtown Mexico City, Mexico, November 17, 2017. REUTERS/Henry Romero

Among risk factors that have led to a discount on domestic assets or boosted risk premia, “those related to the credit rating of Pemex, and even to Mexico’s sovereign debt, are particularly noteworthy,” the bank said in its post-meeting statement.

In recent weeks, credit ratings agencies have issued warnings about Pemex, the sovereign rating, and dozens of corporations, expressing concern about the government’s plans to bail out the deeply indebted oil company.

The Bank of Mexico’s (Banxico) board members voted unanimously to hold the overnight interbank rate at 8.25 percent, its highest since August 2008.

All 18 analysts and economists surveyed in a Reuters poll forecast that Banxico would hold the key lending rate at 8.25 percent, the level it has been at since Dec. 20.

The bank said the balance of risks for growth remained tilted downward and that slack conditions in the economy loosened toward the end of 2018 and the early part of 2019.

Despite a recent easing in price pressures, the bank said “the balance of risks for the forecasted path of inflation still remains to the upside, in an environment of high uncertainty.”

Mexico’s annual inflation continued to slow in the first half of March, with consumer prices rising 3.95 percent in the year through February, slightly below the 3.99 percent increase registered in the second half of February.

One risk for inflation the bank mentioned was President Andres Manuel Lopez Obrador’s move to boost the minimum wage.

“Considering the magnitude of the minimum wage increases, in addition to their possible direct impact, there is also the risk that these bring about wage revisions that exceed productivity gains and give rise to cost pressures, affecting formal employment and prices,” said the bank.

In December, the country’s wage commission agreed to raise the daily minimum wage of just over $4 by 16 percent, the biggest percentage raise since 1996.

Reporting by Anthony Esposito; Editing by James Dalgleish

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