February 28, 2018 / 7:32 PM / 4 months ago

UPDATE 2-Mexico central bank maintains 2018-19 growth outlook, flags inflation risks

(Adds central bank governor’s comments)

By Sheky Espejo

MEXICO CITY, Feb 28 (Reuters) - Mexico’s central bank kept its economic growth projections for this year and next unchanged in a report released on Wednesday, but flagged risks to the inflation outlook and vowed to act in an “opportune and firm” way to keep price expectations anchored.

In its quarterly report, the Banco de Mexico said the Mexican economy will grow between 2 and 3 percent in 2018, leaving its forecast unchanged from the last report. In 2019, it added, the economy is seen growing between 2.2 percent and 3.2 percent, also in line with its previous outlook.

New central bank Governor Alejandro Diaz de Leon has adopted a hawkish stance to underline his commitment to keep prices under control.

In its latest quarterly report, the bank once again stressed its willingness to act to quash price rises.

“Given the presence of risks that imply a high grade of uncertainty for inflation and its expectations, monetary policy (will be) opportune and firm,” it said.

In a client note, Goldman Sachs economist Alberto Ramos said he expected the central bank to hold rates steady at 7.50 percent in its April meeting, “barring new negative shocks to inflation” and if the exchange rate remains steady.

The bank noted that the balance of risks to inflation remains upwardly slanted in an environment of high uncertainty, and that future risks to inflation could come from significant price rises in some energy products.

Mexico’s central bank reiterated that it expects inflation to keep falling, getting close to its 3 percent target throughout 2018, reaching the target in the first quarter of 2019 and remaining around 3 percent for rest of next year.

Diaz de Leon said there was no evidence of second order effects on inflation, but said Mexico faces an especially volatile scenario for the peso exchange rate.

The balance of risks to growth remains on a downward bias, the bank said. It noted that a delay in the renegotiation of the North American Free Trade Agreement, or an unfavorable outcome to the talks, are risks to growth, along with volatility in financial markets around Mexico’s July election.

Nonetheless, the bank said that due to monetary policy actions, the government’s adherence to fiscal goals, and the resilience of the financial system, Mexico’s economy was now better placed to face possible adverse scenarios. (Reporting by Sheky Espejo; Additional reporting by Anthony Esposito, David Alire Garcia and Gabriel Stargardter; writing by Gabriel Stargardter; editing by Frank Jack Daniel, Tom Brown and Lisa Shumaker)

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