Policymakers at Banco de México today decided to hold their
benchmark interest rate unchanged at 4.50%, right where it has been
since mid-2009. In their statement, the policymakers noted
that the Mexican economy continues to grow, but they said the
growth rate has slowed in response to weaker activity and gathering
risks abroad. The policymakers noted that price inflation in
Mexico has recently worsened, but they ascribed the acceleration
primarily to food supply shocks that should be transitory.
They repeated their longstanding argument that low inflation in
domestic services was a sign that price pressures are not
spreading. In fact, they predicted that the September
inflation rate of 4.8% would be the maximum for the year, and that
inflation would fall back to approximately 4.0% by the end of 2012
before converging again on their target of 3.0% during 2013.
Nevertheless, the policymakers explicitly committed themselves to
raise interest rates if necessary, saying that if the recent supply
shocks persist, they would consider it prudent to bring about a
near-term adjustment in the benchmark rate.
Comment: Compared with Banco de
México's previous statements, this one suggests the policymakers
are now perhaps a bit less confident that Mexican inflation will
fall back as earlier expected. Their explicit commitment to
adjust rates if inflation pressures persist is particularly
noteworthy. The policymakers are still likely to hold off on
any rate hikes in the next few months, but there is an increasing
chance that they will raise rates in early 2013. Against a
backdrop of continued low interest rates and loose monetary policy
in the developed countries, the prospect of a rate hike in Mexico
would probably put additional upward pressure on the peso.
Patrick Fearon, CFA
Vice President, Fund Management