MexECON Blog

Central Bank Holds Rates at 4.50 Percent

Banco de México decided on Friday to hold its benchmark interest rate unchanged at 4.50%, right where it has been since July 2009.  In their statement, the policymakers said Mexican exports and industrial production continue to grow at an "accelerated rhythm," reflecting a rebound in foreign demand.  They also noted that domestic consumption and investment in Mexico appear to be improving, though they remain at relatively low levels.  The policymakers said Mexican inflation has fallen faster than expected, and they reiterated their goal to bring it down to 3.0% by the end of 2011.

Comment:  Banco de México cut interest rates aggressively as the global economy weakened in early 2009.  In seven straight cuts, the policymakers brought their benchmark rate down from 8.25% to the current 4.50%.  Although Mexico has experienced a strong economic rebound over the last year, recent data has been relatively mixed, suggesting that growth could be moderating.  Instability in the global financial markets and weak employment growth in the United States are also serving to hold down confidence in Mexico.  Coupled with continued excess capacity, these trends help explain why Mexican inflation is falling again and on track to reach the central bank's goal on schedule.  In this environment, Mexican interest rates will probably not begin to rise until 2011.

Patrick Fearon, CFA
Vice President, Fund Management

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