MexECON Blog

Central Bank Holds Rates at 4.50 Percent

Policymakers at Banco de México on Friday decided to hold their benchmark interest rate at 4.50%, right where it has been since July 2009.  In their statement, the policymakers said Mexican exports and industrial production continue to reflect the rebound in U.S. economic activity, while there has even been "a certain improvement" in Mexico's consumption demand and private-sector investment.  The peso may have weakened with the recent European debt crisis, but the policymakers noted that it has more recently appeared to stabilize and even strengthen a bit.  They also noted that Mexican inflation is falling again, and they reiterated their goal to bring it down to 3.0% by the end of 2011.

Comment:  The central bank cut interest rates aggressively as the global economy spiraled downward in early 2009.  In seven straight cuts, the policymakers brought their benchmark rate down from 8.25% to the current 4.50%.  Mexico's economic rebound would seem to argue for raising rates again in the near term, but the instability in the global financial markets is likely to persuade the central bank to hold rates steady for some time to come.  Most likely, Mexican interest rates will not begin to rise until very late in 2010 or in 2011.

Patrick Fearon, CFA
Vice President, Fund Management

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