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Mexico's central bank warns about 'adverse scenario' and inflation risks

The members of Banco de México's board agree that an increasingly adverse economic scenario could affect the convergence of inflation to its 3% target in 2018, minutes from the central bank's last monetary policy meeting show.

While inflation has declined during the year, the depreciation of the Mexican peso, gas prices and U.S. tariffs imposed on the country could slow down the fall of inflation, the regulator warned.

According to the notes, Banxico's board members "cautioned that monetary policy faces a more adverse scenario and with greater uncertainty."

"Most members agreed that the balance of risks to the forecasted trajectory of inflation has worsened since the last monetary policy decision and remains biased to the upside, in an environment of high uncertainty," the notes from the June 21 meeting also noted.

Furthermore, the board members pinpointed exchange rate pressures due to higher external interest rates and U.S. dollar strength and uncertainty regarding both the NAFTA renegotiation and the July 1 general election in Mexico, as additional factors that have created a more challenging scenario for monetary policy.

During the June 21 meeting, the governing board unanimously decided to raise the target for its overnight interbank interest rate by 25 basis points to 7.75%, citing a further weakening of the Mexican peso that could delay the convergence of inflation to its goal.

Looking ahead, Banxico said it will maintain a "prudent monetary policy stance" and will make adjustments "in a timely and robust manner" to attain inflation convergence.