Mexico central bank seen holding rate steady, hiking in third quarter

Mexico central bank seen holding rate steady, hiking in third quarter

Twenty-six out of 27 analysts polled by Reuters expect the Banco de Mexico to hold its key rate at 3.00 percent on March 26, after inflation slowed to the central bank's 3 percent target for the first time in nearly 9 years in February.

Policymakers held borrowing costs steady in January, eyeing the risk that a sharply weaker peso could fan consumer prices higher while also noting big risks to growth.

Mexico's peso has weakened more than 17 percent since late May thanks to falling oil prices.

The Federal Reserve on Wednesday moved a step closer to hiking rates for the first time since 2006, but downgraded its economic growth and inflation projections, signaling it is in no rush to push borrowing costs to more normal levels.

Mexican central bank governor Agustin Carstens said in January that Mexico will probably have to raise interest rates this year, given the Federal Reserve's own expected hike in U.S. borrowing costs. Many fear rising U.S. interest rates could reverse a tide of investment into emerging market assets seeking riskier, high-yielding assets.

Ten analysts polled by Reuters were evenly divided over whether Banxico will hike rates before or after the Fed moves.

The median bet of analysts is for a tightening cycle to begin with a 50-basis-point hike in the third quarter, pushing borrowing costs up to 4.25 percent by the fourth quarter of 2016.

In a January poll, analysts had expected the rise would begin with a 25-basis-point hike in the third quarter.

The central bank will issue its policy statement at 1 p.m. local time (1500 ET) next Thursday.

(Reporting by Miguel Gutierrez; Writing by Alexandra Alper; Editing by Chizu Nomiyama)