Banxico unlikely to hike bank rates amid softer growth

Banxico published its Quarterly Inflation Report for the second quarter yesterday. Due to fall in oil production and manufacturing exports, the bank revised its annual growth forecasts for 2015 to a range of 1.7-2.5% from 2.0-3.0%. According to barclays's estimation, the annual inflation should close below 3% in 2015 and stay close to target during 2016.

The economy continues to reflect an important level of slack and inflation expectations remained anchored. Banxico believes that one factor that has helped maintain inflation under control is the fact that the output gap remains negative and it expects that it will only close gradually, given the slower than expected growth, says Barclays. However, the main risk to inflation is the still unobserved FX pass-through to non-tradable prices, hence the concerns of the board about this factor.