Mexico central bank warns Pemex challenges could put stability at risk

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MEXICO CITY (Reuters) - Financial challenges at Mexican state oil company Pemex could pose a risk for the country’s macroeconomic stability, Mexico’s central bank said in minutes published on Thursday.

Credit ratings agencies in recent weeks have issued warnings about Pemex and the country’s sovereign rating, expressing concern about the government’s plans to bail out the deeply indebted oil company. The entity holds roughly $106 billion in financial debt, the highest amount of any state oil firm in Latin America.

A majority of central bank members said any new government support for Pemex should address the company’s structural problems and not affect the country’s budget deficit, to avoid hurting its sovereign credit rating.

For the economy overall, the majority of bank members said available information suggests that growth at the start of the year continues to be low.

Mexican industrial output rose 0.3 percent in February from January, the national statistics agency said on Thursday. Although manufacturing typically has been a bright spot due to U.S. demand, the sector was nearly flat in February from the prior month.

Year-over-year, industrial output was down 0.8 percent, impacted by slower growth in mining and construction.

“Tighter financial conditions, policy uncertainty, soft business confidence, and slowing external demand will likely generate headwinds to both the construction and manufacturing sectors in 2019,” Goldman Sachs said in a report.

Even so, Capital Economics said in a report that February’s increase from the prior month suggests that Mexico’s economy will post stronger growth in 2019 than last year.

Mexico’s central bank held rates steady for the second time in a row at its March 28 monetary policy meeting, after several consecutive hikes. A majority of board members said in the meeting minutes published on Thursday that the entity will adjust monetary policy in an opportune and firm manner to reach its 3 percent inflation target.

Reporting by Daina Beth Solomon, Editing by Frank Jack Daniel and Diane Craft