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As Mexico inflation eases, central bank could cut rates again

MEXICO CITY (Reuters) – Mexican consumer prices in the first half of December slipped well below the central bank’s target, data from national statistics agency INEGI showed on Monday, likely paving the way for the bank to keep cutting the benchmark interest rate.

Prices in the year through the first half of December rose 2.63%, while they increased 0.35% during the first half of December.

It was the lowest first-half month inflation reading since the end of 2015 and it compares with 5.0% in the first half of December 2018.

The bank aims for inflation of 3.0%, with a tolerance threshold of 1 percentage point above or below that level.

“Soft inflation will allow Mexico’s central bank to continue its easing cycle. We expect a further 50 basis points of rate cuts over the coming months, taking the policy rate to 6.75%,” Nikhil Sanghani, an economist at Capital Economics, said in a report.

Financial group Monex expects Banxico, as the Bank of Mexico is known, to cut the key rate four more times, bringing it to 6.25%.

The Bank of Mexico on Thursday cut its benchmark interest rate to 7.25%, citing softening headline inflation and slack in the economy but highlighted concern that a recent minimum wage hike could stoke price pressures.

The closely watched core price index, which strips out some volatile food and energy prices, climbed 0.36% in early December, INEGI said. Core consumer prices rose 3.59% in the year through the first half of December.

“But with core inflation stubbornly above target and the U.S. Fed unlikely to ease policy any further, we think the easing cycle will end there,” said Sanghani.

(Reporting by Anthony Esposito in Mexico City; Editing by Steve Orlofsky and Matthew Lewis)


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