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Mexican central bank holds benchmark interest rate at 3.75%

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Mexican central bank holds benchmark interest rate at 3.75%

Mexico'scentral bank, Banco de México,or Banxico, on May 5 decided to hold its benchmark interest rate steady at 3.75%citing stable inflation and domestic economic growth, but said continuing financialvolatility in global markets is a concern.

Banxicoraised its benchmark rateby 50 basis points to 3.75% in February, which was the second rate hike in as manymonths following a 25-basis point hike in December 2015 in response to the U.S.Federal Reserve's rate hike.

"Goingforward we cannot rule out new episodes of financial volatility," the centralbank said, adding that although oil prices have continued to show recovery, theglobal market for oil, which is a key export for Mexico, has undergone a "structuralchange" affecting supply and demand.

Overall,continuing global economic weakness has slowed the recovery in developed countriesand some emerging markets, the bank noted, adding that moderate consumption growthin the U.S., despite higher employment, is a particular concern for Mexico.

Mexico'sown economic growth improved in the first quarter of 2016 from the previous quarter,according to preliminary figures, mainly due to strong domestic consumption offsetby weak external demand and lower investment, the central bank noted.

In addition,annual inflation was 2.6% in the first two weeks of April, which is below the centralbank's target range, and is expected to remain below 3% in the medium-term althoughit could temporarily exceed that level by the end of the year, the bank noted.

The banksaid it would continue to monitor factors affecting the long-term inflation outlook,especially the exchange rate and its potential impact on consumer prices, and itis ready to change the benchmark interest rate if required to ensure inflation remainsin line with its 3% target.