Mexico central bank holds growth, inflation outlook steady

By Sharay Angulo

MEXICO CITY, May 30 (Reuters) – Mexico’s central bank on Wednesday stuck to its forecasts for economic growth and inflation this year but cited risks from the upcoming Mexican presidential election and trade talks with the United States.

The Banco de Mexico’s quarterly inflation report said core inflation for the year was seen on a slightly better trajectory than previously expected. It also held its growth forecasts steady for next year.

The central bank projected the economy would grow between 2 percent and 3 percent in 2018, with fourth-quarter inflation forecast at around 3.8 percent, down from 4.3 percent in the third quarter.

Central Bank Governor Alejandro Diaz de Leon later said that because growth had been stronger than expected in the first quarter of 2018, there were grounds for optimism.

“Given that good result in the first quarter, growth for the full year will probably be at the upper end of the 2-3 percent range,” Diaz de Leon told local radio.

Mexico’s economy grew by 1.1 percent during the January-March period in comparison to the previous quarter, official data showed last week.

The bank noted its estimates were based on the assumption the next administration would preserve the country’s commitment to “solid” economic policies and sound public finances as well as policies to promote investment and productivity growth.

Mexico holds its presidential election on July 1, with leftist Andres Manuel Lopez Obrador holding a strong lead in opinion polls.

Governor Diaz de Leon said the election was one of the risks to economic growth the bank was eyeing.

A poll by Nomura on Wednesday showed 70 percent of Mexican banks and funds thought Lopez Obrador would significantly change economic policy if elected.

But 71 percent of foreign-based respondents thought the changes to economic policy would only be marginal.

Among risks to growth and inflation, Mexico’s policymakers are also watching the outcome of talks to overhaul the North American Free Trade Agreement (NAFTA) among Mexico, the United States and Canada, the central bank said.

U.S. President Donald Trump has repeatedly threatened to rip up NAFTA if it is not renegotiated to his liking. Diaz de Leon said, however, that termination of the agreement was not a central scenario for the central bank. (Additional reporting by Anthony Esposito, Michael O’Boyle and Dave Graham; Editing by Peter Cooney and Sandra Maler)