Mexico’s April Rate Pause Was Unanimous as Inflation Slows

Mexican policy makers voted unanimously to leave rates unchanged last month, saying that they didn’t see demand-side pressures on inflation, according to the minutes of the last rate meeting.

The central bank left the key interest rate unchanged at 3.5 percent on April 25, as forecast by all 26 economists surveyed by Bloomberg. First-quarter expansion was slower than expected and risks of weak growth prevailed, policy makers said in the minutes released today.

Inflation reached a six-month low in April after higher income taxes and border sales levies failed to spur a sustained surge in prices amid sluggish economic growth. The majority of central bank board members indicated that weak economic growth would help keep inflation subdued, while forecasting an economic recovery later in the year, Carlos Capistran, chief Mexico economist at Bank of America Corp., said by phone today.

“The minutes were a bit more dovish than expected,” Capistran said. “Banxico is comfortable with its current monetary stance.”

The peso weakened 0.4 percent to 12.998 per dollar at 10:12 a.m. in Mexico City, after appreciating 0.7 percent in the year through yesterday.

Rate Outlook

The central bank will wait until the third quarter of 2015 before raising rates, about the same time the U.S. Federal Reserve increases rates, said Alexis Milo, chief Mexico economist at Deutsche Bank AG.

“The minutes recognize that inflation has gone down faster than everyone expected and the balance of risks for growth has improved,” Milo said by telephone.

Inflation slowed to 3.5 percent in April from 3.76 percent the previous month, within the 2 percent to 4 percent target range, the national statistics institute said yesterday.

Economists expect inflation to end the year at 3.85 percent, according to a May 7 central bank poll, down from 3.92 percent in the previous monthly survey. The analysts also lowered their growth outlook, to 3.01 percent from 3.4 percent at the start of the year.

“The majority of members sustained that they didn’t see demand pressures on inflation over the period in which monetary policy operates,” policy makers said in the minutes.

Annual price increases will remain below 4 percent for the remainder of the year, although core inflation will see “sustainable acceleration” when the economy starts picking up, Marco Oviedo, chief Mexico economist at Barclays Plc, said in a note after yesterday’s inflation report.

On Jan. 1, Mexico implemented a levy of 1 peso per liter on sugary drinks, raised the income tax ceiling to 35 percent from 30 percent and increased sales taxes in regions bordering the U.S. to 16 percent from 11 percent.

Analysts estimate the economy grew 2.15 percent in the first quarter from a year earlier, and predict expansion of 4.15 percent for the final three months of the year, according to a Bloomberg survey.