April 26, 2018 / 2:39 PM / a year ago

UPDATE 1-Mexico central bank flags exchange rate risk, vows prudent stance-minutes

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MEXICO CITY, April 26 (Reuters) - Mexico’s central bank plans to maintain a prudent monetary policy stance and to continue to monitor the pass-through of the exchange rate on prices, according to minutes from its last interest rate-setting meeting, published on Thursday.

On April 12, the central bank unanimously voted to hold the benchmark rate steady at 7.50 percent, citing cooling inflation and fewer risks to consumer prices. The Banco de Mexico also signaled that its current stance was in line with efforts to bring inflation back to its target.

Since then, prices have continued to cool. Annual inflation in Mexico slipped to its lowest level in over 14 months in the first half of April, moderating at a faster pace than expected, data from the national statistics agency showed on Tuesday.

At the same time, Mexico’s peso has been weakening in recent weeks, falling nearly 4 percent over the last month, as investors pour back into U.S. debt, and as concerns grow over the upcoming July 1 presidential election, in which the current opinion poll leader is leftist Andres Manuel Lopez Obrador.

The central bank said most members thought the balance of risks to inflation remained tilted upwards in an environment of high uncertainty, while most members thought the balance of risks to growth remained tilted downwards.

A majority of board members saw economic activity continuing to expand over coming months, growing faster this year and next year than in 2017, the minutes showed.

The bank added it expects inflation to keep falling, approaching its 3 percent target toward the end of this year, reaching it in the first quarter of 2019 and remaining around the target for rest of that year.

Risks to the bank’s expectations come from an unfavorable renegotiation of the North American Free Trade Agreement (NAFTA) - although the bank noted those risks had diminished in recent weeks - changes in U.S. monetary policy, and uncertainty surrounding the Mexican presidential election, it said.

Nonetheless, the bank affirmed it would act in an “opportune and firm manner” to anchor inflation expectations. (Reporting by Gabriel Stargardter and Anthony Esposito; editing by Jonathan Oatis)

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