MexECON Blog

Central Bank Holds Rates at 4.50 Percent

On Thursday, policymakers at Banco de México decided to hold their benchmark interest rate unchanged at 4.50%.  In their statement, the policymakers said economic activity in Mexico "appears to have decelerated."  Most notably, they pointed to the major earthquake in Japan this spring, which they said disrupted global supply chains in the automotive industry and accounted for much of the slowdown in Mexican manufacturing.  The policymakers said the supply disruptions have now passed, but internal demand in Mexico has weakened, and the output gap is likely to close more slowly than previously thought.  The policymakers said that excluding a few food items, most prices are rising at a rate below the central bank's goal of 3.0%.  In their view, inflation risks in Mexico are still improving.

Comment:  Mexico's benchmark interest rate has been unchanged at its current low level since July 2009, and the policymakers show no sign that they will change it in the near future.  That is especially true given their statement that the output gap will probably close more slowly than earlier thought.  Their assertion that price pressures are confined to only a few categories of goods is also a signal that they are likely to hold rates steady for the foreseeable future.  Mexican monetary policy will probably be stable for quite some time, though the next change will most likely be an increase in interest rates.

Patrick Fearon, CFA
Vice President, Fund Management

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