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Mexico May Keep Benchmark Rate at Record Low as Growth in Economy Slows
Mexico’s central bank will probably keep its benchmark lending rate unchanged for the 24th consecutive meeting today as inflation accelerates while economic growth slows
The bank’s board, led by Governor Agustin Carstens, will leave the overnight rate at a record low of 4.5 percent, according to all 20 economists surveyed by Bloomberg. It is the first time since August that analysts are unanimous in their forecasts. The decision will be announced at 9 a.m. local time.
Speculation the central bank may be preparing to cut rates has dimmed after inflation exceeded expectations for three months in a row following a region-leading slump in the peso over the past six months. Inflation is now running at the fastest pace in a year, even as Europe’s debt crisis dims the outlook for economic growth.
“The international situation has generated more volatility and for more time than we had estimated,” said Rafael Camarena, an economist at Banco Santander SA (SAN) in Mexico City. “We could be on hold until economic conditions improve.”
Mexico’s peso has weakened 12 percent over the past six months, the worst performer among major Latin American currencies, pushing up import costs. The inflation rate climbed to 3.82 percent in December from 3.14 percent three months earlier. A record drought has also fueled farm prices.
‘Moderate Growth’
The economy will have “moderate growth” of an estimated 3.5 percent this year, Carstens said Jan. 17, down from about 4 percent in 2011.
Growth eased to 3.68 percent in October from 4.52 percent the month before, while industrial production increased a monthly 0.1 percent in November, compared with the median forecast among economists polled by Bloomberg of 0.6 percent.
Mexico’s benchmark IPC stock index has risen 5.9 percent in the last month. Yields on the nation’s benchmark bonds maturing in 2024 have fallen 45 basis points, or 0.45 percentage point, to 6.31 percent over the same period.
While the peso and economic growth remain weak, the central bank will probably keep rates on hold through 2013, Nomura Securities Inc. said in a Jan. 17 report titled “Mexico: 4.5% forever?” Any pick-up in growth may create a “trade-off” with a stronger peso, the report said.
The peso has rallied 5.2 percent against the dollar in the year to date, as risk aversion subsides amid a rebound in manufacturing in the U.S., the destination of 80 percent of Mexico’s exports.
‘Adequate’
The central bank said at its Dec. 2 meeting that the “current monetary posture is adequate” although members were divided over the need to raise or cut the key interest rate in 2012, according to the minutes.
The December decision took a more neutral and “slightly less dovish” approach than the Oct. 14 statement because it shifted the balance of risk on inflation to neutral from improved, Gabriel Casillas, chief Mexico economist at JPMorgan Chase & Co., said.
Still, consumer prices have absorbed the shocks to the country’s exchange rate “very well,” central bank Deputy Governor Manuel Ramos Francia said on Jan. 12.
Mexico’s monetary policy has been consistent with a downward inflation trend and policy makers have felt comfortable with their 4.5 percent benchmark interest rate, he said during an event in Mexico City. The central bank targets 3 percent inflation. It next meets to decide on rates March 16.
The central bank may still lower rates this year if signs of a recession in Mexico increase, said Eduardo Avila, an economist with Monex Casa de Bolsa in Mexico City. “Growth risk is increasing,” he said. There is still “the possibility that Banco de Mexico could cut interest rates.”
To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net.
To contact the editor responsible for this story: Joshua Goodman at jgoodman19@bloomberg.net.
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