Mexican policy makers were split in their decision to keep the key interest rate unchanged at a record low last month, with one voting for an increase to prevent market instability ahead of an imminent Federal Reserve move.
Banco de Mexico’s board kept the overnight rate at 3 percent on July 30, as forecast by all 29 economists surveyed by Bloomberg. The vote was three to one, the first split since a rate cut in June 2014, with only four of five board members present, according to minutes released Thursday. Deputy Governor Manuel Ramos missed the meeting, while Finance Minister Luis Videgaray, who isn’t on the board, attended.
The central bank lowered its 2015 growth forecast yesterday, citing a decline in oil production. Governor Agustin Carstens said that although weak growth and low inflation point to leaving rates on hold, decisions will depend on how markets and the peso, already trading near record a low, react to the eventual U.S. move.
The central bank is positioned to “take the needed measures with all the flexibility and in the moment that conditions require them,” policy makers said in the minutes. They’ll pay particular attention to the exchange rate, Mexico’s monetary posture relative to the U.S. and the degree of slack in the economy, they said.
Mexican policy makers have left the overnight borrowing rate unchanged at 3 percent since mid-2014 to boost an economy that grew less than analysts expected in eight of the past 12 quarters. Carstens yesterday reiterated Mexico could raise rates before the U.S. and before the board’s next scheduled rate decision in September if peso volatility gets out of control.
The peso showed little reaction to the minutes. The currency maintained its loss, weakening 0.3 percent to 16.3328 per U.S. dollar.