UPDATE - Mexico keeps interest rate unchanged at 11%

ADDS FIGURES, COMMENTS

By Ovunc Kutlu

ISTANBUL (AA) - Mexico's central bank on Thursday kept the target for the overnight interbank interest rate unchanged at 11%.

The move came in line with market expectations.

Banco de Mexico reduced its policy rate by 25 basis points on March 21 to 11 % from 11.25%.

"World economic activity is expected to continue increasing during the second quarter of 2024, although at a slower pace than in the previous quarter," Banco de Mexico’s Governing Board said in a monetary policy statement. "In most advanced economies, headline and core inflation continued decreasing."

The bank noted that the US Federal Reserve keeps its federal funds rate unchanged, while some central banks of advanced economies lowered their rates.

"International financial markets registered limited movements," said the statement. "Among key global risks are the intensification of geopolitical turmoil, the protraction of inflationary pressures, tight financial conditions, and, to a lesser extent, the challenges to financial stability."

Banco de Mexico last hiked rates in March 2023 which pushed the interest rate to a record 11.25%.

The central bank said annual headline inflation in Mexico rose from 4.65% to 4.78% between April and the first half of June.

Core inflation, however, which better reflects the inflation trend, continued to fall from 4.37% to 4.17% during the same period.

The bank said expectations for headline inflation for the end of the year were revised upwards, but estimates for core inflation decreased slightly.

It noted that the disinflation process is expected to continue.

"Although the depreciation of the Mexican peso impacts the inflation forecast upwards, its effects are partly offset by those associated with the greater weakness exhibited by economic activity," according to the statement.

The Governing Board said it expects headline inflation to converge with the bank's target of 3% in the fourth quarter of 2025.