MexECON Blog

Central Bank Holds Rates at 4.50 Percent

Policymakers at Banco de México decided on Friday to hold their benchmark interest rate unchanged at 4.50%, precisely where it has been since July 2009.  In their statement, the policymakers made special note of the deteriorating growth in the key developed economies, which they said was weighing on Mexican exports and industrial activity.  On a more positive note, they said the global slowdown was helping bring down commodity prices.  Because of Mexico's continuing good growth and solid fundamentals, the policymakers expected the recent fall in the peso to be limited, which would also help keep a lid on inflation.  In sum, they expected Mexican prices to continue rising only moderately.  The policymakers reasserted their view that current monetary policy would bring inflation down to their long-term target of 3.0%.

Comment:  Mexican policymakers during the summer pledged to adjust interest rates if necessary to address the deteriorating economic situation.  Because of the modest improvement in the recent data, however, the most likely scenario is for Mexican interest rates to remain unchanged for the foreseeable future.  As added evidence of that, the peso has finally stabilized after its late-summer plunge.  In sum, Mexican monetary policy looks likely to remain on hold for the time being.

Patrick Fearon, CFA
Vice President, Fund Management

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