Mexico kept borrowing costs unchanged for a second straight month as the central bank vows to maintain its restrictive stance over the coming months while inflation continues to show signs of cooling.

Policymakers held their key rate at 11.25% Thursday, matching the forecasts of all 25 analysts surveyed by Bloomberg. The decision was unanimous. Borrowing costs are at their highest level since the central bank started targeting inflation in 2008.

“To achieve the orderly and sustained convergence of inflation to its 3% target, the board considers that it will be necessary to keep the interest rate at its current level for a prolonged period,” the bank said in its policy statement.

The central banks of Brazil and Chile have also kept their rates on hold at meetings this week with disinflation clearly underway and inflation expectations in retreat. Investors are now looking to the second half of 2023 for Latin America’s major economies to start easing monetary policy.

In May, Banxico, as the central bank is known, ended its record 725 basis-point hiking campaign that began in June 2021.

Read More: Bloomberg Economics: Global Trade Trends Support Mexico’s Growth

The bank’s statement is “fairly neutral,” doesn’t change forward guidance, and maintains the cautious rhetoric about inflation expectations, said Pamela Diaz Loubet, Mexico economist at BNP Paribas.

Annual consumer price rises eased to 5.84% last month, almost 300 basis points below last September’s cycle high of 8.7%, led by a slowdown in energy, including cooking gas, as well as fruit and vegetable prices. Despite the decline, inflation in services remains sticky amid pressure caused in part by higher wages.

The core reading, which had been one of the bank’s primary concerns and excludes volatile items such as fuel, is slowing far more gradually and at 7.39% in May is still more than 150 basis point above the headline figure. Data reported earlier Thursday showed additional improvements in the first two weeks of June, with year-on-year consumer prices rising 5.18%, down from 5.67% in late May.

The central bank targets an annual inflation rate at 3% plus or minus a percentage point.

What Bloomberg Economics Says

“The Mexican central bank’s latest rate hold confirms the tightening cycle is over. Forward guidance shows that policymakers are still cautious and will wait for more information before considering a less hawkish tone and rate cuts. We still see Banxico on hold until the fourth quarter, when tight monetary conditions, smaller price changes, lower inflation expectations and more moderate domestic demand prompt it to start cutting rates.

— Felipe Hernandez, Latin America economist

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Banxico members had maintained their hawkish tone in recent weeks, signaling that they’ll keep the key rate at a record high for multiple meetings.

Read more: Banxico to Hold Key Rate for ‘as Long as Possible,’ Member Says

Economists in a Citibanamex survey published this week raised their 2023 growth forecast to 2.2%, up from 1% in early February, while trimming their 2023 inflation forecast to 4.99%. They also see the key rate ending the year at 11%, matching the estimate of economists surveyed by Bloomberg.

“We believe the central bank will keep the current rate for the rest of the year and will only start a cutting cycle in the first quarter of 2024, as core inflation remains at a high level,” said Carlos Capistran, the chief Canada and Mexico economist at BofA Securities Inc. “Risks remain to the upside given the tight labor market.”

Mexico’s currency continues to outperform most emerging-market peers after hitting the strongest level in more than seven years on Friday. In the past year, the peso has appreciated 17% against the dollar, the best performer in a basket of 31 currencies tracked by Bloomberg.

“The tighter monetary policy stance relative to the US has been key to Mexico’s peso appreciation in the past months, further diminishing price pressures from imports,” Carlos Morales, director of sovereign ratings at Fitch Ratings, wrote in a note.

--With assistance from Rafael Gayol, Alex Vasquez and Dale Quinn.

(Updates with analyst comments from sixth paragraph.)