Mexico central bank seen holding steady after peso rally

Mexico's central bank is expected to hold borrowing costs steady on Friday after a rally in the peso dampened concerns that currency weakness will fan inflation higher.

All 15 analysts surveyed this week by Reuters said they expect the central bank to hold its key lending rate at 3.75 percent following a surprise hike in February that was aimed at supporting the battered peso.

The Mexican currency has rallied about 9 percent since the central bank delivered its half-percentage-point hike on Feb. 17 and intervened directly in the foreign exchange market for the first time since the 2009 financial crisis.

A global rally in riskier assets has helped lift the peso against the U.S. dollar. A statement from the U.S. Federal Reserve on Wednesday suggested it will likely take longer to raise rates than some had recently thought.

Mexican policymakers have suggested they could closely follow the moves of the Fed.

The Banco de Mexico hiked its key rate in December for the first time in seven years from a record low of 3 percent, hoping to support the peso after a rate increase by the U.S. Federal Reserve threatened to sap demand for emerging market assets.

Mexico's currency had tumbled since late 2014 amid a slump in global oil prices, but so far its losses have not stoked big increases in inflation.

The country's annual inflation rate in February rose to 2.87 percent, its fastest since June, but the increase was driven by a surge in food costs while core inflation showed only modest pressure from the weak peso.

Central Bank Governor Agustín Carstens has said the central bank could act again if renewed losses in the peso threaten inflation expectations, but he has repeatedly said the February hike was not the start of a cycle of rate increases.

Early this month, the central bank lowered its economic growth outlook for this year to between 2.0 percent and 3.0 percent, blaming weak growth in the United States and around the world for crimping exports.