MexECON Blog

Central Bank Holds Rates at 4.50 Percent

In a decision on Friday, policymakers at Banco de México decided to keep their benchmark interest rate unchanged at 4.50%.  In their statement, the policymakers slightly raised their assessment of the Mexican economy, noting that exports had recently regained momentum, while growth in domestic consumption was becoming more noteworthy and generalized.  They even said domestic investment was becoming more clearly positive, though it remained at low levels.  The policymakers noted that inflation had rebounded late in 2010, but they attributed the rise to temporary factors such as rises in food prices and changes in administratively-determined prices.  The policymakers said factors such as continued excess economic capacity and the strong peso would start driving inflation lower again later in 2011.

Comment:  Mexico's benchmark interest rate has now been unchanged since July 2009, and the latest policy statement provides no reason to expect any change in the near future.  In recent months, some observers have suggested Banco de México may cut rates or take other steps to bring down the soaring peso, but nothing in the latest policy statement points in this direction.  Prior to the concerns about the peso, most observers thought the next move would be to hike rates.  That still looks like the most likely next move, but even that would be unexpected until late 2011.  In sum, monetary policy in Mexico looks like it will be stable for the foreseeable future, providing continued impetus to the country's ongoing economic rebound but also allowing for continued strengthening of the peso.

Patrick Fearon, CFA
Vice President, Fund Management

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