MexECON Blog

Central Bank Holds Rates at 4.50 Percent

In a decision on Friday, policymakers at Banco de México decided to hold their benchmark interest rate unchanged at 4.50%, right where it has been for the last 33 months.  The policymakers said they continued to expect moderate economic growth in the United States, but they also noted the renewed uncertainty regarding the sovereign debt crisis in Europe.  They also said Mexico was proving itself "resistant" to adverse winds from overseas.  They emphasized that while Mexican exports had reaccelerated, some aspects of domestic demand had moderated.  In sum, they believed that the balance of risks for Mexico had improved somewhat.  Meanwhile, the policymakers said inflation was falling below the expectations of market analysts, and as evidence that inflation would fall further, they noted that services inflation remains well anchored.  In this environment, the officials said the current stance of monetary policy was consistent with overall inflation falling to their target of 3.0%.

Comment:  The surge in Mexican producer prices last year still makes me think consumer inflation could rebound again, but the officials at Banco de México are correct to note that the actual data has shown some moderation recently.  With the policymakers seeing fewer growth risks and expecting inflation to continue moderating, it appears Mexican interest rates are likely to stay right where they are for the time being.

Patrick Fearon, CFA
Vice President, Fund Management

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