Fed Uncertainty Seen Keeping Bank of Mexico On Hold

The Bank of Mexico might be sorely tempted to cut interest rates this week after the economy took a turn for the worse in the second quarter and inflation slowed, but consensus is that the specter of Fed “tapering” and its potential fallout in emerging markets will keep policy makers on hold, settling instead for some very dovish language.

Since the Bank of Mexico’s five-member board met in July, inflation has moved back within its 2%-4% target range and the government statistics agency has reported that gross domestic product contracted 0.7% in the second quarter from the first, prompting a cascade of downward revisions for full-year GDP growth.