Mexico's Benchmark Rate to Stay Unchanged Next Year, BofA-Merrill Says

Bank of America Merrill Lynch said Mexico’s central bank will probably keep interest rates unchanged through the end of 2011, while rate cuts are possible if the U.S. economy deteriorates.

Bank of America Merrill Lynch also cut its 2011 economic growth forecast to 3.3 percent from 3.6 percent, according to an e-mailed report.

The central bank, known as Banxico, held its benchmark interest rate unchanged at 4.5 percent for a record 12th straight meeting last month, saying inflation will remain within forecasts even as the economy grew the most in a decade in the second quarter.

“Banxico will be on data-dependent mode, carefully balancing any further deterioration in the U.S. growth outlook and its potential implications for Mexico’s and the evolution of inflation and inflation expectations,” the report said.

Mexico sends about 80 percent of its exports to the U.S. Bank of America doesn’t expect a double-dip recession in the U.S.

“If downside risks materialize to our U.S. growth forecasts, Banxico may even have room to cut interest rates next year,” the company said in an e-mailed report.

The peso strengthened 0.1 percent to 13.0593 per dollar at 1:06 p.m. New York time from 13.0683 yesterday.

To contact the reporter on this story: Jonathan Levin in Mexico City at jlevin20@bloomberg.net

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