By Alexandra Alper and Luis Rojas
MEXICO CITY (Reuters) – Mexico’s central bank held borrowing costs steady on Thursday, flagging weaker growth and warning that uncertainty around the U.S. presidential election might cause deeper peso losses that could fan inflation.
The Banco de Mexico left its key rate
But central bank policymakers said they cannot rule out a deeper slump, given the U.S. election in November, the possibility of weak oil prices and further U.S. Federal Reserve tightening.
U.S. Republican presidential nominee Donald Trump kicked off his campaign last year saying Mexico was sending rapists and drug dealers across the border, and some analysts have forecast a Trump win could weaken the peso beyond 20 per dollar.
The central bank said its inflation outlook was neutral and stuck to its forecast for inflation to close the year slightly above its 3 percent target and be around 3 percent next year.
Mexican consumer prices rose 2.65 percent in the year through July, data showed this week, but remained below the central bank’s target, giving the bank room to hold rates steady.
But it said the growth outlook has deteriorated on a stagnant industrial sector and disappointing services industry. Data earlier on Thursday showed industrial output barely rose in June, dragged down by mining, which includes oil output.
Faced with global risks, Mexico’s government should take further measures to consolidate public finances such as aiming for a primary budget surplus next year, the bank’s policymakers said.
(Reporting by Alexandra Alper and Simon Gardner; Editing by Bernard Orr and Dan Grebler)