• Banxico kept borrowing costs at 3.75% after surprise increase
  • Peso has strengthened recently and Fed held steady last month

Mexican policy makers voted unanimously to keep the key interest rate unchanged at their meeting last month, with some board members saying they saw the possibility of shifts in borrowing costs independent of the U.S. Federal Reserve, according to the minutes released Friday.

Banco de Mexico’s board, led by Governor Agustin Carstens, maintained the overnight rate at 3.75 percent on March 18, after raising borrowing costs by a half-point at a surprise meeting in February.

Policy makers reiterated that their key focus was the exchange rate and its pass-through to consumer prices, and that they would keep a close eye on U.S. monetary policy. While the majority of them said that a surprise Feb. 17 rate increase was not the start of a cycle, one board member said he saw the probability of continued tightening in coming months. Most policy makers saw inflation risks as neutral, although some said that the risk is increasing.

Concern over inflation has eased after the peso strengthened more than any other major currency except for Brazil’s real since Banxico announced the rate increase on Feb. 17 as part of coordinated actions with the government to bolster the exchange rate.

Federal Reserve Chair Janet Yellen signaled March 29 she would act cautiously against a backdrop of deteriorating global economic growth after U.S. kept interest rates unchanged March 16, further easing pressure on the peso.

Inflation has proven less of a threat after slowing unexpectedly in early March to 2.71 percent from 2.80 percent in the prior two weeks, remaining below the central bank’s 3 percent target. The peso has strengthened 9.3 percent through Thursday since the rate hike. It fell 0.4 percent to 17.3504 pesos per dollar at 9:56 a.m. in Mexico City.

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