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Mexico's central bank unexpectedly keeps rate unchanged

Banco de México's governing board maintained the target for the overnight interbank interest rate at 4.25% on Nov. 12, saying domestic economic activity had started to recover in the third quarter after "markedly" contracting in the second quarter.

The Mexican central bank said economic activity remained below pre-pandemic levels amid uncertainty and downside risks, which included lower inflationary pressures across the globe and increased social distancing measures that weakened demand for goods and services.

"The risks for inflation, economic activity and financial markets pose major challenges for monetary policy and for the economy in general," the central bank said.

A majority of the governing board decided to leave the benchmark interest rate unchanged, while one member voted to lower the rate by 25 basis points.

"This pause provides the necessary room to confirm that the trajectory of inflation converges to the target," the central bank said.

The consensus estimate of economists polled by Trading Economics was for an interest rate cut of 25 basis points.

Annual headline inflation increased to 4.09% from 4.01% between September and October, according to the central bank.

The central bank cited an increase in inflation expectations for the end of 2020. Medium-term and long-term expectations "remained stable at levels above the 3% target," the central bank said.