August 30, 2017 / 5:57 PM / a year ago

Mexico central bank boosts growth targets on hopes of better U.S. relations

MEXICO CITY (Reuters) - Mexico’s central bank on Wednesday revised upward growth targets for this year and next, emboldened by signs that worst-case scenarios for U.S.-Mexico relations would not materialize.

The central bank forecast growth between 2 percent and 2.5 percent for 2017, up from 1.5 percent to 2.5 percent in the previous inflation report. For 2018, the bank predicted growth between 2 percent and 3 percent, up from 1.7 percent to 2.7 percent.

The central bank also expects inflation to drop significantly in the first months of next year.

“We have a central bank that is determined to break the back of inflation,” Carstens said.

Mexico’s board voted 5-0 to leave its benchmark interest rate at 7.00 percent this month after hiking rates in the previous seven meetings to counter a surge in inflation to its highest in more than eight years.

Speaking on Wednesday, Agustin Carstens, the head of the Mexican central bank, said the current interest rate was appropriate to help inflation fall back to its target, but he added the board would maintain a prudent stance going forward.

Carstens, who is set to leave at the end of the year, said he would not be present to reduce rates. However, any eventual rate cuts should be made cautiously, he added.

Mexico, Canada and the United States are in the process of renegotiating the North American Free Trade Agreement (NAFTA) as U.S. President Donald Trump has threatened to end the deal.

Carstens said it was difficult to estimate the impact that an end to the NAFTA would have on Mexico, but added that a return to World Trade Organization rules would not have major macroeconomic consequences.

Despite the optimistic projections, Carstens noted the Mexican economy could face complications from tighter global financial conditions, ongoing NAFTA renegotiation and the 2018 elections in the country.

Reporting by Michael O'Boyle and Julia Love; Editing by Jeffrey Benkoe

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