Mexico cenbank gives financial system passing grade as chief urges calm on inflation

By Brendan O'Boyle

MEXICO CITY, June 11 (Reuters) - Mexican Central Bank Governor Victoria Rodriguez urged confidence in Mexico's banking system and economy on Wednesday, seeking to assuage fears about rising inflation and stagnant growth in Latin America's second-largest economy.

The central bank offered an optimistic outlook in its biannual stability report released on Wednesday, saying Mexico's financial system has shown "resilience" despite ongoing trade tensions with the U.S. and a "global context characterized by the slowdown in economic activity."

Banxico, as the central bank is known, is facing a challenging balancing act as it seeks to ease rising inflation while stimulating Mexico's sluggish economy.

Despite the challenges, Mexico's banking system maintains "solid" liquidity with capital levels above regulatory minimums. Stress tests show that it can confront "simulated adverse scenarios," the report said.

"Our country has a solid macroeconomic framework," Rodriguez said during a presentation of the report.

Rodriguez downplayed concerns of long-term high inflation, saying it remains on a downward trajectory and far from the highs reached in 2022, when it peaked at 8.7%.

Headline inflation in Mexico accelerated to 4.42% in May, exceeding the upper end of the central bank's target range of 3%, plus or minus a percentage point.

Core inflation, which excludes volatile items like food and oil, rose to 4.06%, its highest level in almost a year.

Banxico currently forecasts inflation will fall in the third quarter before converging to its target by the third quarter of 2026.

"It would be premature to conclude or think that the Mexican economy is or will soon be in a period of high inflation," Rodriguez added.

Rodriguez reiterated the board's position that is appropriate to continue easing the bank's monetary policy, following its 50 basis-point cut to its benchmark interest rate last month.

A dozen economists surveyed by Reuters expect the Bank of Mexico to implement a fourth consecutive rate cut of 50 basis points at its next meeting on June 26, despite the inflation uptick.