Gross domestic product will expand between 3.5 percent and 4 percent this year, compared with the 3.8 percent to 4.8 percent forecast in August, the bank said in its quarterly inflation report posted today. Growth will slow to between 3 percent and 4 percent next year, compared with the previous estimate of 3.5 percent to 4.5 percent.
“The balance of risks to growth has been adjusted downward,” central bank Governor Agustin Carstens told reporters in Mexico City today. As other countries lower interest rates “eventually, it may be convenient to relax monetary policy” in Mexico.
A rebound in Latin America’s second-biggest economy is losing steam as a result of lower sales to the U.S., which buys 80 percent of Mexico’s exports. Industrial production shrunk in July and August from a year earlier, while manufacturing export growth is slowing. As growth slows, inflation will remain subdued, Carstens said.
Consumer prices rose less than economists expected in October, the national statistics agency said today, boosting the central bank’s argument that inflation trends remain benign.
Prices climbed 0.67 percent, less than forecast by 17 of 19 economists surveyed by Bloomberg and below the median estimate of 0.7 percent. Prices increased 3.2 percent from a year earlier, compared with 3.14 percent in September, the agency said on its website.
“We’re expecting a relatively favorable inflation performance,” Carstens says.
The central bank left its inflation forecast for this year and 2012 unchanged at 3 percent to 4 percent. Policy makers target inflation of 3 percent plus or minus a percentage point.
The most recent survey of economists by Citigroup Inc’s Banamex unit shows inflation this year reaching 3.39 percent, unchanged from two weeks earlier, while analysts in the central bank’s monthly survey reduced their prediction by 0.04 percentage point to 3.30 percent.
Today’s inflation report showed that Mexicans paid 14.8 percent more for electricity in October as the government withdrew subsidies in some states. Food, drink and tobacco prices rose 0.58 percent in the month, while the cost of fruits and vegetables declined 1.45 percent. Core inflation, excluding items such as energy and food, rose 0.26 percent, less than the 0.29 percent median estimate by 17 analysts surveyed by Bloomberg.
While policy makers said in the minutes to their last monetary policy meeting that they are willing to cut rates, a sustained decline in the peso may fuel inflation and require a more restrictive stance, the bank said.
Since Aug. 1, the peso has weakened 13 percent against the dollar, more than all 16 major currencies tracked by Bloomberg except South Africa’s rand. Carstens has said he expects the peso to pare its recent declines once global risk aversion recedes.
Mexico’s five-member central bank board on Oct. 14 kept the overnight rate at 4.5 percent for a 22nd consecutive meeting, the longest period of any central bank in Latin America. Brazil cut its benchmark rate a half-point at each of its last two meetings, while Colombia raised its rate a quarter point in July.
“The governing board has taken a neutral attitude, open to an adjustment in either direction in the monetary policy rate,” central bank Deputy Governor Manuel Sanchez said in an interview in New York yesterday.
Economists in the Nov. 3 Banamex survey pushed back their calls for a 25 basis point rate cut to March 2012 from January in the previous survey. Meanwhile, analysts in the central bank survey who called for a 0.25 percentage point rate cut this quarter represented approximately a quarter of the sample, up from about 15 percent in the previous survey.
“The scenario remains for the Bank of Mexico to cut interest rates if that’s what they want to do,” said Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co. in Mexico City.