Banxico Raises GDP Forecast Amid Lessened Inflation Risk

Mexico’s central bank raised its growth forecast for this year and said the risk to inflation has diminished, while expressing optimism that the economy can sustain its current expansion.

Banco de Mexico boosted its estimate for the expansion in Latin America’s second-biggest economy to a range of 3.25 percent to 4.25 percent from its prior projection of 3 percent to 4 percent, according to its quarterly inflation report published today. Consumer prices will probably increase in 2013 at the lower end of the bank’s 3 percent to 4 percent anticipated range, the lender said. The bank left its core inflation forecast for this year and next at about 3 percent.

“We don’t perceive pressures that, so to speak, would be undesirable for inflation,” central bank Governor Agustin Carstens said at a press conference today in Mexico City.

External economic factors, such as Europe’s debt crisis, remain the greatest risk for the Mexican economy, and the peso’s value has been depressed by the global uncertainty, Carstens said.

Mexico’s central bank board kept the key interest rate unchanged at 4.5 percent for a 26th consecutive meeting last month, while signaling willingness to cut should global monetary policy remain loose and European financial markets stabilize.

‘Can Be Sustained’

Since then, inflation has slowed for a third consecutive month in April, while stocks worldwide have fallen after Greece failed to form a new government.

“Despite this great turbulence, we see that economic growth has still accelerated and can be sustained,” Carstens said.

Banco de Mexico today raised its forecast for formal sector job creation for this year to a range of 540,000 to 640,000, up from the previous estimate of 500,000 to 600,000.

The bank forecast a trade deficit of $3.2 billion for this year, narrower than the previous $3.9 billion estimate, and a current account deficit of $12 billion, compared with the previous $17.7 billion projection.

The annual inflation rate fell to a six-month low of 3.41 percent in April from 3.73 percent the month before, the national statistics agency said May 9.


Even before that, economists had cut their year-end inflation forecast to an average 3.68 percent this month from 3.78 percent in April and 3.88 percent in March, according to a monthly survey by the central bank.

The central bank, which targets inflation of 3 percent, plus or minus one percentage point, holds its next policy meeting on June 8.

The yield on inflation-linked securities due in December 2012 known as Udibonos, fell 113 basis points, or 1.13 percentage points, to 0.64 percent this month through yesterday.

The peso has declined 5.4 percent in the month to date, the fourth-worst performance against the dollar of 16 major currencies tracked by Bloomberg, as the crisis in Europe has set off renewed volatility.

The peso rose 0.6 percent to 13.7539 per dollar at 2:49 p.m. local time from 13.8363 yesterday.

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