Mexico’s central bank directors are divided over the need to raise or cut their key interest rate in 2012 as consumer prices climb during a global economic slowdown, minutes from their Dec. 2 meeting show.
The central bank board, led by Governor Agustin Carstens, voted unanimously to keep the overnight rate at 4.5 percent for a 23rd consecutive meeting, according to the minutes published today on the bank website. The board said the “current monetary posture is adequate” as members disagreed whether risks to inflation would deteriorate or remain unchanged. Only four of the five board members were present at the December meeting, the minutes showed.
“Some board members indicated that a relaxing of monetary posture could be recommended if world economic growth continues to deteriorate,” the minutes said. Other board members said an increase in financial volatility and weakening monetary conditions “have increased the probability that implementing a more restrictive monetary policy might be necessary.”
The board met before reports that consumer prices had surged in November by the fastest pace in almost two years. Policy makers may remain on hold “indefinitely”, said Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co., said by phone.
“In the minutes, the board members really abandoned any idea or any willingness to cut,” he said in a telephone interview in Mexico City. Casillas had previously forecast a rate cut of 25 basis points in the first quarter 2012.
Economic growth in Latin America’s second-biggest economy will moderate to 3.23 percent in 2012 from an estimated 3.90 percent this year, according to 26 economists and consulting firms in a central bank survey published today.
Even as growth moderates next year, inflation will accelerate to 3.69 percent from 3.53 percent in 2011, according to the poll. The central bank targets 3 percent inflation.
The consumer price index rose 1.08 percent in November, the biggest jump since January 2010, partially reflecting a removal of electricity subsidies.
The board agreed in the Dec. 2 meeting that the depreciation of the exchange rate could pose a risk to inflation, which they estimated would range from 3 percent to 4 percent next year, according to the minutes.
Today’s report shows that central bank’s board members are “quite concerned with the exchange rate and they see a low probability of a strong and quick appreciation of the Mexican peso,” said Delia Paredes, chief economist at Grupo Financiero Banorte, in Mexico City.
Banxico, as the central bank is known, “will keep its current monetary policy unchanged for next year and even throughout the first quarter of 2013,” Paredes said in a telephone interview in Mexico City. “Growth will be relatively good, with internal demand getting a boost from the elections,” she said referring to the presidential elections that will take place in July.
The peso advanced 0.3 percent to 13.8775 per U.S. dollar at 5 p.m. in Mexico City, from 13.9153 yesterday. It has dropped 2.2 percent this week and 11.1 percent this year, the biggest decline among the region’s major currencies for 2011.
Gains in the service industry offset a slowdown in manufacturing exports during the third quarter, when gross domestic product expanded 1.3 percent from the previous period on a seasonally adjusted basis, policy makers said in the meeting. Private consumption may slow as consumer confidence appears to be stagnant, the bank said today.
The central bank next meets Jan. 20 to decide on rates.