Carstens Says Slower Inflation May Pave Way to Mexico Rate Cut

Mexico’s central bank would consider cutting interest rates for a second time this year if the annual inflation rate fell below 4 percent, bank Governor Agustin Carstens said today.

Adverse weather conditions and other factors that pushed inflation above the central bank’s target range are expected to be temporary, Carstens said in an interview today with Radio Formula. Inflation should slow to within the 2 percent to 4 percent target range in the second half of the year, he said.

“Perhaps once we’re in this circumstance there’s a possibility to consider an additional movement,” Carstens said. “But while this inflationary hump, so to speak, doesn’t ease, and we don’t have the certainty that it will ease, it’s difficult to carry out an additional movement on interest rates.”

The central bank cut rates by half a point on March 8 to a record low 4.0 percent after inflation slowed.

Since then, price-growth has risen back above the target range, reaching 4.72 percent in the first half of April as a frost in some northern states pushed up farm prices. The bank’s board left rates unchanged on April 26, saying they expect inflation to start slowing back toward their target range in June.

The peso weakened 0.5 percent to 12.2068 per dollar as of 4 p.m. Mexico City time.

To contact the reporter on this story: Nacha Cattan in Mexico City at ncattan@bloomberg.net.

To contact the editor responsible for this story: Andre Soliani at asoliani@bloomberg.net.

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