Mexico Likely to Keep Rate Steady as Inflation Slows Amid Growth
Mexico’s central bank will probably keep its benchmark interest rate unchanged for the 25th consecutive meeting today after inflation slowed to within the target range and economic growth picked up.
The bank’s board, led by Governor Agustin Carstens, will leave the overnight lending rate at a record low of 4.5 percent, according to all 19 analysts surveyed by Bloomberg. The decision will be announced at 9 a.m. local time.
The effect of a drought in the north of the country has eased in the past few months, pushing down food costs and allowing annual inflation to slow in February for the first time in five months to 3.87 percent. While inflation moderates, economic growth has proved more resilient than expected by the central bank earlier this year, with industrial production rising 4.2 percent in January, the fastest pace in eight months.
“Growth is doing very well, inflation is contained,” said Delia Paredes, chief economist at Grupo Financiero Banorte, in Mexico City. “The central bank will probably extend its pause.”
Banco de Mexico, as the central bank is known, will probably keep rates unchanged beyond November, when Banorte had previously forecast a rate increase, Paredes said. Banorte hasn’t formally changed its forecast, she said.
Consumer prices last month rose 0.20 percent after a 0.71 percent increase in January, which pushed the annual inflation rate to 4.05 percent, the fastest pace since 2010 and above policy makers’ 2 percent to 4 percent target range for the first time in 13 months.
“There’s no risk of inflation creeping beyond the 4 percent maximum that the central bank” set, Finance Minister Jose Antonio Meade said March 8 in an interview with Bloomberg Television.
Car exports surged 24.9 percent in February from the year earlier and formal job creation in the same period reached about 130,000, the highest monthly rate in five years, President Felipe Calderon said March 14.
The economy is experiencing “balanced growth,” Meade said March 13, the day January’s industrial output figure beat all 16 analysts’ estimates in a Bloomberg survey. “Elements in the domestic environment and the external environment have improved.”
Meade said in the March 8 interview that exports will probably climb from last year’s record high and that growth could have “positive surprises.”
U.S., Rate Stability
Carstens said Feb. 23 that gross domestic product may climb close to 4 percent this year if U.S. data keeps improving. The bank has forecast economic growth of 3 percent to 4 percent, compared with 3.9 percent in 2011.
Claims for jobless benefits in the U.S. dropped last week to match the lowest level in four years, Labor Department figures showed yesterday. A recovery in the world’s biggest economy will help fuel stronger growth in Mexico, which sends 80 percent of its exports to the U.S.
In the minutes of their March 6-7 meeting at which they cut the benchmark rate by 75 basis points to 9.75 percent, Brazilian policy makers signaled that they will lower borrowing costs to 9 percent.
Elsewhere in Latin America, Chile kept its overnight rate at 5 percent for the second consecutive month yesterday while Peru has kept its rate at 4.25 percent for 10 straight months. Banco de la Republica Colombia has raised borrowing costs twice in 2012.
Banco de Mexico on Jan. 20 kept its benchmark interest rate at 4.5 percent, saying “the current monetary policy posture is conducive to reaching the permanent inflation target,” according to the meeting’s minutes published Feb. 3.
The peso has appreciated 10 percent this year, the best performance among the 16 most-traded currencies tracked by Bloomberg worldwide. In trading yesterday, the peso rose 0.5 percent to 12.6575 per dollar from 12.7265 on March 14.
The yield on Mexico’s peso-denominated debt due in 2024 fell two basis points, or 0.02 percentage point, to 6.52 percent, according to data compiled by Bloomberg. The price rose 0.22 centavo to 130.05 centavos per peso.
Following today’s decision, the central bank will next meet to decide on rates April 27.
To contact the reporter on this story: Nacha Cattan in Mexico City at firstname.lastname@example.org.