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 said the Mexican economy continues to accelerate in a way that is more balanced than earlier in the economic recovery.  They noted Mexican exports have recently started to grow faster again, while domestic demand is now on a positive trend as well.  With these trends continuing, the policymakers forecast that the economy's "output gap" could be closed by mid-year.  The policymakers also noted the sharp decline in Mexican inflation in the first quarter of the year, but they said some of the decline stemmed from temporary developments that could soon reverse themselves.  The policymakers maintained their commitment to adjust monetary policy as necessary to keep inflation close to their target rate of 3.0%.

Comment:  Mexico's benchmark interest rate has now been unchanged since July 2009, and the policymakers show every sign that they will keep rates unchanged in the near future.  However, their statement that the economy could be running at its long-term capacity by the middle of the year is a clear sign that the next move, when it comes, will likely be to raise rates.  That is especially true given their warning that inflation could accelerate again in the near future.  Mexican monetary policy is likely to be stable for some time, but the next change will apparently be an increase in interest rates.

Patrick Fearon, CFA
Vice President, Fund Management

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