By Inigo Alexander and Natalia Siniawski
MEXICO CITY, Aug 6 (Reuters) - Mexico's central bank held its benchmark interest rate at 6.50% on Thursday, extending the pause it began in June, and pushed back its forecast for headline inflation to converge to target to the end of next year.
Banxico's five-member governing board voted unanimously to keep the rate unchanged, in line with market expectations, and said maintaining the current level would be appropriate going forward.
"With regard to the inflation
outlook, both headline and core inflation are still expected to decline throughout the forecast horizon, albeit more gradually than previously anticipated," the bank said in its statement.
Banxico kept its forecasts for both headline and core inflation at the end of 2026 unchanged at 3.5%. It also pushed back its expectation for inflation to converge to its 3% target to the fourth quarter of 2027, from the second quarter previously.
The bank said risks to the inflation outlook remain biased to the upside, citing persistent core inflation, possible disruptions linked to foreign trade policies, geopolitical conflicts, climate-related pressures, cost pressures and the risk of peso depreciation.
It added that changes in U.S. economic policy and a possible widening of geopolitical conflicts continue to add uncertainty to the outlook.
The statement was only marginally more hawkish than Banxico's June decision, Liam Peach, senior emerging markets economist at Capital Economics, said.
"The bias will remain towards a pause in rates over the coming months but we still think the balance of probabilities is tilted towards tightening by year-end," Peach said.
Banxico also said economic slack is expected to persist throughout the forecast horizon and that significant downside risks to economic activity remain.
Mexico's economy rebounded in the second quarter after contracting in the prior three-month period. Preliminary data released last week by statistics agency INEGI showed gross domestic product grew 1.5% in the second quarter from the previous quarter, after a 0.6% contraction in the first quarter.
(Reporting by Iñigo Alexander and Natalia Siniawski; Editing by Kylie Madry)
