• Dissenter who voted for July rate increase rejoined majority
  • Inflation has slowed to lowest level in almost half century

Mexican policy makers were unanimous in their decision to keep the key interest rate unchanged last month, citing slow inflation and low economic growth, as one member who had voted for a rate increase in July fell back into line with the majority.

Banco de Mexico’s board, led by Governor Agustin Carstens, maintained the overnight rate at 3 percent on Sept. 21, as forecast by all 26 economists surveyed by Bloomberg. Latin America’s second-biggest economy is stuck between slow inflation and a sluggish economy on the one hand and difficult external conditions that could weaken the peso and spur price increases on the other, board members said in meeting minutes published Monday.

After a surprise half-point cut more than a year ago, Mexico’s central bank has held rates steady to boost a $1.28 trillion economy that’s being slowed by a drop in oil output. While growth is tepid and inflation has slowed to less than the 3 percent target, policy makers are concerned an increase in U.S. interest rates could spur foreign investors to withdraw capital, fueling the decline in the peso.

“The economy’s cyclical conditions continue to show weakness,” policy makers said in the minutes. “However, possible monetary policy actions by the Federal Reserve could have repercussions on the exchange rate, inflation expectations and, thus, on price dynamics in Mexico.”

The peso showed little reaction to the minutes. The currency maintained its gain, strengthening 0.4 percent to 16.6927 per U.S. dollar.

The central bank has signaled that higher borrowing costs in the U.S. will probably call for an increase in Mexico, even as consumer prices rise at the slowest pace in almost five decades. The impact of the peso’s 19 percent decline the past year remains small, policy makers said.

Economic growth is likely to amount to 2.3 percent this year, according to a survey of analysts released by the central bank Friday. That’s more than a percentage point less than the 2015 growth forecast at the end of last year.

Prices rose 2.59 percent in August from a year earlier, the lowest annual inflation rate since 1968. The majority of policy makers reiterated their expectation for price increases to remain below 3 percent this year and near that level in 2016.

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