By Anthony Harrup
MEXICO CITY--The Bank of Mexico left its benchmark interest rate unchanged Thursday in a split decision, noting market volatility in the wake of the country's elections that weakened the peso and pushed up government bond yields.
The central bank's five-member board of governors voted 4-1 in favor of keeping the overnight interest-rate target at 11% in a second straight meeting on hold. Deputy Gov. Omar Mejía voted to lower the rate to 10.75%.
The Bank of Mexico cut the reference rate in March, then stayed on hold in May as inflation ticked higher.
Numerous analysts dropped their calls for a follow-up interest-rate cut this month as the peso weakened against the U.S. dollar after the June 2 election in which the ruling party won enough congressional seats to make constitutional changes proposed by outgoing President Andrés Manuel López Obrador, several of which are seen as discouraging for investors.
The Bank of Mexico noted the volatility in markets that caused medium- and long-term government bond yields to rise and the peso to depreciate.
"However, more recently, domestic financial markets have displayed a better behavior," the bank said.
In the aftermath of the election, Bank of Mexico Gov. Victoria Rodríguez said the central bank could take measures if needed to restore market stability, such as reactivating a dollar-hedging program that was set up in 2017, but stressed that the bank doesn't target a specific exchange-rate level.
The peso was trading at 18.38 to the U.S. dollar Thursday, compared with 17.02 before the election.
The central bank said risks to its inflation forecasts remain biased to the upside, but that it still expects inflation to return to its 3% target in the fourth quarter of 2025.
Looking ahead, the inflationary environment "may allow for discussing reference rate adjustments," the bank added.
Write to Anthony Harrup at anthony.harrup@wsj.com
(END) Dow Jones Newswires
06-27-24 1547ET
