Mexico Central Bank Pauses at 4.5% for 18th Meeting Amid Benign Inflation

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  • Posted on April 15, 2011


    Mexico’s central bank kept its benchmark interest rate unchanged today and said it will adjust its monetary policy in the event of unexpected inflationary pressure.

    Banco de Mexico’s board, led by Governor Agustin Carstens, extended its longest-ever pause and kept the overnight rate at 4.5 percent for an 18th straight meeting. The decision matched the forecast of all 17 economists surveyed by Bloomberg.

    Inflation in Latin America’s second-biggest economy slowed “significantly” in the first quarter and should remain within the bank’s forecasts for the rest of the year, the bank said in a statement. Still, the recent slowing of core inflation may partly reverse in coming months, the bank said.

    The board “will watch prices for grains and raw materials with special attention, and inflation components that could cause unexpected pressure,” the bank said. “The bank will adjust its monetary position if this possibility materializes.”

    Among the major Latin American countries that use inflation targeting, only Mexico has yet to raise rates in the past year as prices increase at the third-slowest pace in the region after Chile and Peru.

    The peso, which has risen 5.3 percent this year, was little changed at 11.7168 at 10:28 a.m. New York time.

    ‘No Inflationary Pressure’

    Policy makers kept borrowing costs at a record low as the annual inflation rate is near a five-year low, the peso is trading at a 30-month high and growth remains below potential, said Alfredo Thorne at Grupo Financiero Banorte SAB.

    “Inflation is at one of the lowest levels we’ve had,” said Thorne, who is head of global markets at Banorte, from Mexico City. “As opposed to other countries, there’s no inflationary pressure.”

    Futures contracts for the 28-day interbank rate, known as TIIE, show investors expect policy makers will increase the key rate as soon as September, according to data compiled by Bloomberg. As recently as April 4, they predicted Carstens would raise rates in July.

    Mexican Finance Minister Ernesto Cordero yesterday said rates “won’t move much” from current levels in coming months in an interview on Mexico City-based Radio Formula.

    Growth

    The central bank expects the economy to expand at the upper end of its forecast range of between 3.8 percent and 4.8 percent this year, Carstens said April 7. Still, the economy has room to grow before it fuels inflation because unemployment remains higher than in 2008 and private investment growth is slow, he said.

    Mexico’s annual inflation rate eased to 3.04 percent, which was the slowest since a 3 percent reading in May 2006, and half the 6.3 percent recorded in Brazil, the region’s largest economy. U.S. consumer prices rose 2.1 percent year on year in February.

    Mexico’s jobless rate was 5.38 percent in February, compared with 3.24 percent in May 2008, according to the national statistics agency.

    The central bank won’t change rates until January 2012, according to the median forecast in a survey of economists by Citigroup Inc.’s Banamex unit.

    Brazil Rates

    In Brazil, the central bank has boosted borrowing costs 100 basis points this year.

    The International Monetary Fund and Mexico’s government raised their 2011 economic growth forecasts in recent days.

    Gross domestic product will expand 4.6 percent this year after 5.5 percent growth in 2010, the fastest in a decade, according to the IMF. The fund previously forecast GDP growth of 4.2 percent.

    Finance Minister Ernesto Cordero said Latin America’s second-biggest economy may expand as much as 5 percent in 2011, up from a previous estimate of 4 percent, on U.S. demand for automobiles and other exports.

    The rebound in the U.S. last year helped drive Mexican exports to a record $298 billion.

    The peso yesterday rose 0.5 percent to 11.7125 per U.S. dollar, its strongest level since October 2008. The currency is the fifth-best performer against the dollar among the 16-most traded currencies.

    To contact the reporter on this story: Jens Erik Gould in Mexico City at jgould9@bloomberg.net Jose Enrique Arrioja in Mexico City at jarrioja@bloomberg.net

    To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net

    Bloomberg/AC