(Bloomberg) -- Mexico’s central bank kept borrowing costs unchanged Thursday after inflation reaccelerated last month, taking the remote possibility of a second straight interest rate cut off the table.

Banxico, as the central bank is known, held its key interest rate at 11% in an unanimous decision that had been forecast by 28 of 30 economists surveyed by Bloomberg. Two of them expected another quarter-point cut. 

In light of inflationary pressures, the bank adjusted upward its headline and core inflation forecasts for the next six quarters, and now sees it reaching its 3% target in the last quarter of 2025. Previously, Banxico saw inflation at target in the second quarter of 2025. 

The board “will assess the inflationary environment in order to discuss reference rate adjustments,” policymakers wrote in a statement accompanying their decision. It will also “consider the incidence of both the restrictive policy stance that has been maintained and that prevailing in the future on inflation throughout the horizon in which monetary policy operates.”

“There were important revision in almost the entire inflation horizon projected,” said Janneth Quiroz Zamora, director of economic research at Monex Casa de Bolsa. “What it’s showing is that under the current conditions, there aren’t enough arguments to give a clear signal that in June, in the next meeting, we should expect a reduction in the rate.”

Banxico’s decision underscores the persistence of elevated inflation in Latin America’s second-biggest economy, as domestic consumption remains strong thanks to remittances from Mexicans living abroad and cash transfer programs sponsored by President Andres Manuel Lopez Obrador. Price increases have been above target for almost four years, even as double-digit borrowing costs slow down the economy.

Earlier Thursday, a government report showed consumer prices rose 4.65% in April, above the 4.63% median estimate of analysts surveyed by Bloomberg and the 4.42% increase a month earlier. Banxico targets inflation at 3%, plus or minus 1 percentage point.

Annual core inflation, which strips out volatile items like food and fuel and is closely watched by Banxico, slowed to 4.37% from 4.55% in March.  

Banxico expects that services inflation will be more stubborn than anticipated and reiterated that core readings remain an upward risk for prices, according to the statement. On the other hand, the bank sees an eventual slowdown in global economic activity as an downward risk. 

What Bloomberg Economics Says

“The Mexican central bank’s unanimous decision to keep rates unchanged at 11% and upward revisions to headline and core inflation forecasts signal policymakers are leaning more hawkish. Banxico acknowledged persistent inflation and we see a higher likelihood it stays on hold for longer. That’s likely to support the peso.”

—Felipe Hernandez, Latin America economist at Bloomberg Economics

Despite the rising inflationary pressures, some still believe Banxico will cut in its next meeting June 27. “Banxico has ample room to cut as the real rate remains high, even considering higher inflation forecasts. We keep expecting a cut in the next meeting and while we maintain our view for an ongoing cycle, a disinflation trend will be key for the coming decisions,” BBVA Mexico said in a note. 

Read more: Mexico Cuts Key Interest Rate For First Time Since 2021 

The peso strengthened as much as 0.7% after the announcement to 16.78 pesos per dollar. “The decision is perhaps a bit more hawkish than the market expected and should support the peso and the curve should flatten,” said Benito Berber, chief Latin America economist at Natixis.

Read more: Banxico’s Espinosa Says It’s Too Soon for a Long Easing Cycle

The most recent Citi survey of local economists published Tuesday has Banxico cutting interest rates 25 basis points in its next meeting. Citi raised its inflation forecast for the end of 2024 to 4.17% from 4.10 previously and kept the forecast for the end of 2025 at 3.70%.

Gabriela Siller, director of economic analysis at Grupo Financiero Base, sees government spending and the “high” budget deficit as posing upside risks for inflation in the first half of the year. “In the second half of the year, with less pressure, there will be a more conducive environment to cut interest rates,” she said.

Read More: Mexico’s Economy Grows Slightly Ahead of Key Rate Decision

--With assistance from Michael O'Boyle, Carolina Gonzalez and Rafael Gayol.

(Updates with Banxico comments, inflation forecast, and analysts comments throughout.)

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